NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Granular Search, Market Structure, and Wages

Gregor Jarosch, Jan Sebastian Nimczik, Isaac Sorkin

NBER Working Paper No. 26239
Issued in September 2019, Revised in May 2020
NBER Program(s):Economic Fluctuations and Growth, Labor Studies

We develop a model where labor market structure affects the division of surplus between firms and workers. Using Austrian data we show that in more concentrated labor markets, workers are more likely to return to past employers. In our model, the possibility of these re-encounters endows firms with size-based market power since outside options are truly outside the firm: firms do not compete with their own vacancies. Hence, a worker's outside option is worse when bargaining with a larger firm, and wages depend on market structure. The quantified model suggests that such size-based market power could substantially reduce wages.

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Document Object Identifier (DOI): 10.3386/w26239

 
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