Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies

Abstract

We estimate the impact of the firm component of hourly wage variation on separations from matched Oregon employer-employee data. We use both firm fixed effects estimated from a wage equation as well as a matched IV event study around employment transitions between firms. Separations decline with firm wage policies: the implied firm-level labor supply elasticities are around 4, consistent with recent quasi-experimental evidence, but 3 to 4 times larger than existing estimates using individual wages. We find that monopsonistic competition is pervasive, even in low-wage, high turnover sectors, but with little heterogeneity by labor market concentration.