Discrimination and Monopsony Power

Abstract

Wage inequalities between identical workers of different race, ethnicity, and gender are a persistent feature of labor markets. However, most labor market models either ignore important empirical evidence or focus very narrowly on specific labor market dynamics. To better understand such wage differences, we create a labor market model that integrates firm competition for workers, employee movement between jobs in response to market signals, potential monetary frictions in the job transition process, and workers' collective action which is a function of government support. Our model shows that because of gender- and race-specific historical and social outcomes, like the relatively lower household wealth of Black and Latino families and the increased household responsibilities of women, women and minority workers are more exploitable; employers can push their wage farther below the value of their marginal product. Also, our model shows that the cumulative wage gap for non-White women is greater than the additive gaps of being nonmale and non-White. Lastly, our model shows that a reduction in government support for collective action enables employers to wield monopsony power more freely, independent of changes in employer concentration. Because certain groups are more exploitable, employers' increased capability in wielding monopsony power means increased wage differentials replicating discriminatory biases against marginalized groups of workers.

Gender Inequality, Bargaining, and Pay in Care Services in the United States

“…High market share delivers extra profits, or rents, that workers in high-end occupations may partially capture (Nickell 1999; Card et al 2018). Differences in labor supply elasticity allow employers to influence gender and racial wage gaps (Manning 2013; Stelzner and Bahn 2021). Both public schools and hospitals in the United States exercise significant wage-setting power (Falch 2001; Ransom and Sims 2010; Staiger, Spetz, and Phibbs 2010).…”

Worker Mobility in Practice: Is Quitting a Right, or a Luxury?

“…The differential difficulty in job finding contributes to the persistent differences in Black and white economic outcomes. The differences in hiring rates can explain half of the unemployment rate differences between Black and white workers (Forsythe and Wu 2021), and these differences, along with wealth disparities and others, push down wages (Stelzner and Bahn 2021).…”

Essays on Aggregation With Heterogeneous and Interacting Agents

“…Therefore, model extensions should consider the interaction of both racial and gender-based discrimination on individual perceptions. An intersectional perspective should account for the fact that wage gaps are superadditive (Stelzner and Bahn 2022;Bright et al 2016). Apart from considering more than two groups, exploring differing functional forms for the superadditivity of wage gaps will surely also provide interesting and promising new avenues for further research.…”

“…While perceptions thus appear to be detached from actual gender and racial inequities, we still need to consider the actual levels of inequality as a benchmark. Gender and racial wage gaps were generally between 10 % and 40% in the last decade for industrialised countries which is also the range we will consider (Kunze 2018;Stelzner and Bahn 2022). Moreover, it is now a well-established stylised fact that empirical wage distributions follow an exponential law which has been demonstrated in numerous studies for a vast range of countries and sample periods, i.e., for Australia (Banerjee et al 2006), Romania (Derzsy et al 2012;Oancea et al 2017), the European Union as a whole (Jagielski and Kutner 2013), Japan 2019) confirm for their whole sample of 67 countries that the exponential law provides an excellent fit for empirical wage distributions.…”