Abstract:
This paper identifies product scope as a new determinant of firm-level wage markdowns. Using Danish matched employer-employee data, we document a negative elasticity between wages and scope, which has a similar magnitude to the firm-size wage premium but the opposite sign. Additional empirical evidence suggests that workers are compensated by increased job security at multiproduct firms. We rationalize the scope wage discount using a theory where workers value the internal labor market, as they can switch across product lines instead of leaving the firm. This flexibility makes product scope an amenity, giving multiproduct firms monopsony power to offer lower wages.
