Boris Hirsch

Differences in Labor Supply to Monopsonistic Firms and the Gender Pay Gap: An Empirical Analysis Using Linked Employer‐Employee Data from Germany

This article investigates women’s and men’s labor supply to the firm within a semistructural approach based on a dynamic model of new monopsony. Using methods of survival analysis and a large linked employer‐employee data set for Germany, we find that labor supply elasticities are small (1.9–3.7) and that women’s labor supply to the firm is less elastic than men’s (which is the reverse of gender differences in labor supply usually found at the level of the market). Our results imply that at least one‐third of the gender pay gap might be wage discrimination by profit‐maximizing monopsonistic employers.

Works Councils and Separations: Voice, Monopoly, and Insurance Effects

Using a large linked employer-employee data set for Germany, we find that the existence of a works council is associated with a lower separation rate to employment, in particular for men and workers with low tenure. While works council monopoly effects show up in all specifications, clear voice effects are only visible for low tenured workers. Works councils also reduce separations to non-employment, and this impact is more pronounced for men. Insurance effects only show up for workers with tenure of more than one year. Our results indicate that works councils primarily represent the interests of a specific clientele.

The Productivity Effect of Temporary Agency Work: Evidence from German Panel Data

This study investigates the effect of temporary agency work on the user firm’s productivity. We hypothesise that using temporary agency work to enhance numerical flexibility and to screen job candidates may increase productivity, whereas temporary workers’ lower firm�?specific human capital and spillover effects on the user’s permanent employees may adversely affect productivity. Other than the sparse existing literature on this issue, we exploit a large panel data set and control for time�?invariant and time�?varying unobserved heterogeneity by using the system GMM estimator. We find a robust hump�?shaped effect of the extent of temporary agency work on the user firm’s productivity.

Is There Monopsonistic Discrimination Against Immigrants? First Evidence from Linked Employer-Employee Data

The authors investigate immigrants’ and natives’ labor supply to the firm within an estimation approach based on a dynamic monopsony framework. Applying duration models that account for unobserved worker heterogeneity to a large administrative employer–employee data set for Germany, they find that immigrants supply labor less elastically to firms than do natives. Under monopsonistic wage setting, the estimated elasticity differential predicts a 7.7 log points wage penalty for immigrants thereby accounting for the entire unexplained native–immigrant wage differential of 5.8 to 8.2 log points. When further distinguishing immigrant groups differing in their time spent in the German labor market, their immigration cohort, and their age at entry, the authors find that the observed unexplained wage differential is larger for those groups that show a larger elasticity differential relative to natives. These findings not only suggest that search frictions are a likely cause of employers’ more pronounced monopsony power over their immigrant workers but also imply that employers profit from discriminating against immigrants.

The Gender Pay Gap Under Duopsony: Joan Robinson Meets Harold Hotelling

This paper presents an alternative explanation of the gender pay gap resting on a simple Hotelling-style duopsony model of the labour market. Since there are only two employers, equally productive women and men have to commute and face travel cost to do so. We assume that some women have higher travel cost, e.g., due to more domestic responsibilities. Employers exploit that women on average are less inclined to commute and offer lower wages to all women. Since womens firm-level labour supply is for this reason less wage-elastic, this model is in line with Robinsons explanation of wage discrimination.

Dual Labor Markets at Work

Fitting duration models on an inflow sample of jobs in Germany starting in 2002 to 2010, the author investigates the impact of employers’ use of temporary agency work on regular workers’ job stability. In line with dual labor market theory, the author finds that nontemporary jobs are significantly more stable when employers use temporary agency workers. The rise in job stability stems mainly from reduced transitions into nonemployment, suggesting that nontemporary workers are safeguarded against involuntary job losses. The findings are robust to controlling for unobserved permanent employer characteristics and changes in the observational window that comprises the labor market disruption of the Great Recession.

Do Employers Have More Monopsony Power in Slack Labor Markets

This article confronts monopsony theory’s predictions regarding workers’ wages with observed wage patterns over the business cycle. Using German administrative data for the years 1985 to 2010 and an estimation framework based on duration models, the authors construct a time series of the labor supply elasticity to the firm and estimate its relationship to the unemployment rate. They find that firms possess more monopsony power during economic downturns. Half of this cyclicality stems from workers’ job separations being less wage driven when unemployment rises, and the other half mirrors that firms find it relatively easier to poach workers. Results show that the cyclicality is more pronounced in tight labor markets with low unemployment, and that the findings are robust to controlling for time-invariant unobserved worker or plant heterogeneity. The authors further document that cyclical changes in workers’ entry wages are of similar magnitude as those predicted under pure monopsonistic wage setting.

Spatial Monopsony and Regional Differences in the Gender Pay Gap

While most of the empirical literature on the gender pay gap focusses on the variation of the gender pay gap between countries and its evolution over time, an aspect that has attracted far less attention is the regional variation of the gap within the same country. Though many studies use regional information as control variables in the estimations, only few explicitly deal with the gap’s regional dimension.2 However, to our knowledge, there has been made no attempt to systematically investigate regional differences in the gender pay gap and their evolution over time. What is more, there seems to be no economic theory around that readily explains why there should be such differences. We intend to remove both of these omissions.

Simple Dynamic Monopsony

The discussion of spatial monopsony in Part I descended from the simple static monopsony model, extending its argument to economic space with significant travel cost. The next step was to introduce spatial competition by considering equidistantly distributed firms in space setting wages under conditions of strategic interaction. In line with the spatial economics literature, e.g., Capozza and Van Order (1978) and Greenhut et al. (1987), we labelled this situation as the ‘short run’ as opposed to the ‘long run’ where firms’ profits are driven to zero because of free entry. Apart from this labelling, however, there were no explicit dynamics considered, the reasoning was purely static. Things are different in models of equilibrium search theory with wage posting which explicitly take account of the labour market’s dynamics. We therefore follow Boal and Ransom (1997) and Manning (2003a) in regarding these and related models as models of dynamic monopsony. Unsurprisingly, a good starting point for the following analysis of dynamic monopsony in this sense is a simple dynamic model of pure monopsony which we will set up now.1

A General Equilibrium Model of Dynamic Monopsony

Other than in Part I, the focus of equilibrium search theory with wage posting lies on search frictions in labour markets and how they give rise to wage-setting power on the side of firms and to wage dispersion both on the side of firms and workers. Put differently, it aims to answer the question ‘Why are similar workers paid differently?,’ which is the subtitle of a monograph by Mortensen (2003) assessing this strand of theory, and ‘to explain both transitions in the labor market and the distribution of wages in the labor market in a coherent way.’ (Mortensen, 2003, p. xi)1