THE EMPLOYER SIZE-WAGE EFFECT - CAN DYNAMIC MONOPSONY PROVIDE AN EXPLANATION

In this paper we argue that a dynamic monopsony model (based on labour market frictions) predicts a positive relationship between wages and employer size, but also that the effect will be larger in the non-unio n sector than in the union sector, and larger for women than for men. We examine evidence on the employer size-wage effect using several mic roeconomic data sources, and find it to be generally consistent with t hese predictions. After examining other theoretical explanations, our conclusion is that at least part of the employer size-wage effect is a result of monopsony power in the labour market.