The Dynamics of Power in Labor Markets: Monopolistic Unions versus Monopsonistic Employers

Abstract

This paper brings together the modern literatures on monopsony power and labor unions by empirically examining the effects of unionization on worker earnings, employment, and inequality across differently concentrated markets. Exploiting tax reforms to union due deductions as exogenous shocks to unionization, we show that high levels of unionization causally ameliorate the negative wage and employment effects of labor market concentration. We also document important effect heterogeneity with respect to the types of workers that benefit from union membership as a function of labor market concentration, and demonstrate that this has important implications for the role of unions in shaping labor market wage inequality. To validate our findings and examine robustness to different types of shocks, we extend the analysis by exploiting the emergence of import competition from China as an exogenous shock to employer concentration. This analysis suggests that the negative earnings effect of labor market concentration is eliminated upon reaching a union density of approximately 63 percent at the firm.

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Samuel Dodini
Postdoctoral Fellow in Labor Economics

My broad research interests include the economics of labor markets, incorporating insights from behavioral economics, occupational licensing, monopsony power, education, public finance, and urban economics.