Elke Jahn (Institute for Employment Research)
Boris Hirsch, Alan Manning and Michael Oberfichtner
There is ample empirical evidence that the labour supply to an individual employer is not perfectly wage elastic, which implies that employers have potential monopsony power. This paper aims to estimate the extent to which potential monopsony power passes through to lower wages, which would not happen in competitive labour markets. Using German administrative data, we find an average pass-through of 36%. We also show that the pass-through falls to 20% when organised labour is strong in that collective bargaining and work councils exist. When estimating the pass-through along the wage distribution, we find that monopsony power is most severe for low-wage employers.