Introduction

Labour market monopsony, where employers possess significant power to set wages due to limited competition for labour, is gaining renewed scholarly attention for its role in exacerbating wage inequality and restricting employment mobility. While traditionally associated with isolated markets or single-employer settings, recent literature underscores that monopsonistic conditions are pervasive across various economic contexts, reflecting broader structural frictions such as geographic immobility and institutional weaknesses. This paper addresses a significant gap in the literature by constructing internationally comparable measures of employer monopsonistic power using harmonised International Labour Organization (ILO) microdata from ten countries: Canada, Chile, Colombia, Indonesia, Italy, Peru, Türkiye, the United Kingdom, the United States, and Vietnam.

Labour market monopsony: Why it matters, how it is measured, and what we know

Monopsony occurs whenever the labour supply curve a firm faces is less than perfectly elastic, allowing the firm to set wages rather than take them. Modern literature has evolved to include “dynamic monopsony,” where job-search costs and geographic immobility grant firms power even in markets with many employers. These conditions have significant implications for efficiency and equity, as firms in static monopsony may offer too little employment at depressed wages. The empirical literature establishes five main measurement approaches: employer concentration ratios, labour supply elasticities to the firm, structural estimation of market frictions, wage markdowns from production data, and indirect evidence from minimum wage responses. Robust facts show that exploitation varies enormously across occupations, with historical estimates for baseball players in the United States reaching 100–600 per cent before reserve clauses were removed.

Methods

The study utilizes a structural econometric framework based on the Ridder and van den Berg (2003) model to derive market power indicators. This approach calculates a labour market frictions index (k) to estimate the employer’s markup on worker productivity (μ). For each country, the labour force is segmented into distinct markets based on gender, age group, education level, and geographic location. This segmentation presumes greater mobility within rather than between sectors. Specific modifications were made for Vietnam, which lacks a continuous measure of job duration, to adjust for ordinal data intervals and calculate a comparable frictional index.

Empirical results

The results indicate that monopsonistic power systematically varies across demographic and economic segments. Women generally face higher monopsony power than men across most analysed countries, linked to structural factors such as occupational segregation and high levels of informality. In the United States, greater search frictions for women are associated with wages approximately 3.3% lower than those of men. Younger workers (ages 15–24) also face higher power compared to their middle-aged counterparts (ages 35–44) due to limited professional networks and work experience. Educational attainment presents a paradoxical pattern; while higher education often acts as a protector, advanced education levels in several countries encounter heightened monopsony due to specialised skills constricting the pool of potential employers. Geographical analysis reveals that rural workers in countries like Colombia, Indonesia, and Peru experience higher employer power than urban workers, often due to fewer employment alternatives in agricultural sectors.

How does monopsony impact inequality, and productivity?

Greater employer monopsonistic power is associated with higher wage inequality. In countries like Peru, high informality levels enable firms to maintain low wages, while in the United States, concentrated labour markets allow employers significant control over wages, amplifying penalties for Latina and Black women. The report also explores the wage-automation link, finding that countries with rising monopsonistic power see fewer productivity gains from automation shared with workers. Instead, employers are better positioned to retain these enhancements, suppressing wage growth. Regarding productivity, research suggests monopsonistic power can negatively impact outcomes; for example, firms in East Germany remained small to avoid the costs of higher wages, leading to reduced investment and lower aggregate labour productivity.

Multivariate decomposition

Multivariate regression analysis confirms that being female is associated with a significantly greater employer monopsonistic index (an increase of approximately 0.036), though this pattern vanishes in the United States when controlling for education and sector. Higher education levels systematically reduce monopsony power by roughly 0.03 to 0.06 points relative to those with less-than-basic education. Urban areas offer significantly reduced monopsonistic power compared to rural areas, with a statistically significant negative coefficient of approximately -0.065. Sectoral results highlight agriculture as having significantly higher power relative to construction or manufacturing, reflecting structural barriers and limited bargaining capacity within the sector.

Concluding remarks

The findings advocate for targeted policy measures to reduce labour market frictions and improve worker bargaining conditions. Key recommendations include enhancing labour market mobility, promoting formal employment, improving educational access, and strengthening regulatory frameworks. Such interventions are necessary to ensure more equitable wage distributions and to foster conditions conducive to sustainable productivity growth and inclusive economic development. Without these complementary institutional reforms, technological advancements like automation may continue to exacerbate existing wage disparities.