Labor Market Monopsony and Firm Behavior: Evidence from Spanish Exporters

Abstract

In this paper, I develop a method to estimate the effect of firm behavior on labor market monopsony power. Using China’s accession to WTO for the identification, I employ the proposed empirical framework to analyse the impact of Spanish firms’ exports on their labor market monopsony power. The findings suggest that higher exports raised monopsony power of firms in labor markets between 1996 and 2007. After 2001, more intensely exporting firms reduced their wages by 36-45 percentage points and paid their employees around 39-49 percent of their marginal revenue product. Aligned with increased monopsony power, exporting firms experienced a decline labor productivity and labor share while they employed more low-skilled workers and temporary contracts.