Guillaume Nevo, Uppsala University

"Large Firms, High Concentration, High Wages"

Abstract

How do wages and labor market transitions vary with labor market concentration? Using comprehensive French employer-employee data, I show that wages increase – contrary to what has been shown in other countries – and transition rates decrease when concentration increases. I propose a search-and-matching model with a discrete number of firms, optimal vacancy posting and a fixed cost of entry. My model replicates my main two empirical findings: (1) when the entry cost increases, only the most productive firms enter, the market is more concentrated, wages are higher, and transition rates are lower; (2) given a labor market, an increase in productivity at one large firm increases wages at all firms through the increase in output at that firm and in outside option at all other firms, increases transition rates towards that firm, and reduces them towards all other firms. I quantify the markdowns on wages and show they are always relatively small. I investigate the first-best solution in which a planner chooses the distribution of workers across firms to maximize output: the planner concentrates employment among most productive firms, it increases output, mean wage, and total income to workers despite increasing concentration and unemployment. Efficiency can, in general, not be restored - yet second-best implementations using individual tax and subsidy rates or flat taxes almost achieve the first-best solution.

For more information about Guillaume Nevo and his interesting work - link to his website.

Contact person: Jeppe Druedahl