A Human Capital Theory of Who Escapes the Grasp of the Local Monopsonist /
Matthew E. Kahn, Joseph Tracy.
- Cambridge, Mass. National Bureau of Economic Research 2023.
- 1 online resource: illustrations (black and white);
- NBER working paper series no. w31014 .
- Working Paper Series (National Bureau of Economic Research) no. w31014. .
March 2023.
Over the last thirty years, there has been a rise in several empirical measures of local labor market monopsony power. The monopsonist has a profit incentive to offer lower wages to local workers. Mobile high skill workers can avoid the lower monopsony wages by moving to other more competitive local labor markets featuring a higher skill price vector. We develop a Roy Model of heterogeneous worker sorting across local labor markets that has several empirical implications. Monopsony markets are predicted to experience a "brain drain" over time. Using data over four decades we document this deskilling associated with local monopsony power. This means that observed cross-sectional wage gaps in monopsony markets partially reflects sorting on worker ability. The rise of work from home may act as a substitute for high-skill worker migration from monopsony markets.
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