Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223029
Authors: 
Mertens, Matthias
Year of Publication: 
2020
Series/Report no.: 
IWH Discussion Papers 13/2020
Abstract: 
This study investigates how labour market power shapes between-firm wage differences using German manufacturing sector data from 1995 to 2016. Over time, firm- and employee-side labour market power, defined as the difference between wages and marginal revenue products of labour (MRPL), increasingly moderated rising between-firm wage inequality. This is because small, low-wage, low-MRPL firms possess no labour market power and pay wages equal to or even above their MRPL, whereas large, high-wage, high-MRPL firms possess high labour market power and pay wages below their MRPL. These wage-MRPL differences grow over time and compress the firm wage distribution compared to the counterfactual competitive labour market scenario. Particularly for the largest, highest-paying, and highest-MRPL firms, wage-MRPL differences strongly increase over time. This allows these firms to generate increasingly large labour market rents while being active on competitive product markets, providing novel insights on why such "superstar firms" are profitable and successful.
Subjects: 
inequality
labour market power
monopsony
rent-sharing
large firms
JEL: 
J31
J42
L10
L60
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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