Downloads

WP202239-What-drives-wage-stagnation-monopsony-or-monopoly.pdf
PDF | 864.63 KB
Wages for the vast majority of workers have stagnated since the 1980s while productivity has grown. We investigate two coexisting explanations based on rising market power: 1. Monopsony, where dominant firms exploit the limited mobility of their own workers to pay lower wages; and 2. Monopoly, where dominant firms charge too high prices for what they sell, which lowers production and the demand for labor, and hence equilibrium wages economy-wide. Using establishment data from the US Census Bureau between 1997 and 2016, we find evidence of both monopoly and monopsony, where the former is rising over this period and the latter is stable. Both contribute to the decoupling of productivity and wage growth, with monopoly being the primary determinant: in 2016 monopoly accounts for 75% of wage stagnation, monopsony for 25%.
Authors
Shubhdeep Deb
UPF Barcelona

Research Associate Pompeu Fabra University and Barcelona Graduate School of Economics
Jan is an IFS Research Associate, a Research Professor at the Barcelona School of Economics and an ICREA Research Professor at the UPF Barcelona.
Aseem Patel
University of Essex
Lawrence Warren
US Census Bureau
Working Paper details
- DOI
- 10.1920/wp.ifs.2022.3922
- Publisher
- Institute for Fiscal Studies
Suggested citation
Deb, S et al. (2022). What drives wage stagnation: monopsony or monopoly?. 22/39. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/what-drives-wage-stagnation-monopsony-or-monopoly (accessed: 9 February 2025).
More from IFS
Understand this issue

How can we make government more productive?
How can the public sector do more with less? We explore productivity trends, government reform and lessons from private sector innovation.
3 December 2024

Minimum wages in the UK – how high can they go?
In the UK today, earnings inequality is substantially higher than it used to be.
30 October 2024

Is Labour's inheritance really worse than expected?
30 July 2024
Policy analysis

Employment rates for 15–24-year-olds, by education status, 2019 and 2023
The UK stands out for having low employment rates amongst young people in education.
12 December 2024

Employment rates by local authority, year to June 2024
Almost a third of local authorities in Great Britain already have employment rates of 80%, one in six have employment rates below 70%.
12 December 2024

Growth in core hourly funding and providers’ costs for 3- and 4-year-olds and 2-year-olds
Recent years have seen a wedge open up between funding rates and provider costs.
10 January 2025
Academic research

Firm quality and health maintenance
We estimate the impact of firm quality – primarily measured by firm productivity – on the health maintenance of employees.
18 December 2024

Wage effects of means-tested transfers: Incidence implications of using firms as intermediaries
We show that how countries disburse tax credits matters for economic incidence by exploiting reform to the disbursement of child benefits in Argentina
22 October 2024

Household responses to trade shocks
We study the impact of Chinese import competition in the 2000s on workers and their households in England and Wales.
12 November 2024