https://orcid.org/0000-0002-1148-4077
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ABSTRACT
‘New Monopsony’ models imply that firms can possess wage-setting power even in competitive markets so long as they face an upward-sloping labour supply curve due to labour market frictions. However, previous research has yielded wildly different estimates of the elasticity of labour supply to a firm. Using a field experiment where identical job offers were posted with varying wages in statistically matched areas, I estimate that the elasticity of labour supply to a restaurant to be quite high, between 11.6 and 20.9, implying that workers are hired at wages between 92% and 95% of their marginal products. These results provide evidence for a model where firms only possess wage-setting power over incumbent employees, while new employees are hired at wages close to their marginal products. The policy implications of such a model are discussed.
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Disclosure statement
No potential conflict of interest was reported by the author(s).
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