How has labour market power evolved? Comparing labour market monopsony in Peru and the United States

TL;DR

This paper compares the evolution of employer market power in Peru and the US during the 2010s, revealing sectoral, demographic, and geographic variations, with increased monopsony in the US and decreased power in Peru.

Contribution

It provides the first comparative analysis of labour market monopsony in Peru and the US using a structural estimation model, highlighting sectoral and demographic differences.

Findings

Labour market power declined in Peru during the 2010s.

US sectors like agriculture and entertainment saw increased monopsony.

Gender pay gap not explained by differential market power.

Abstract

We document the evolution of labour market power by employers on the US and Peruvian labour markets during the 2010s. Making use of a structural estimation model of labour market dynamics, we estimate differences in market power that workers face depending on their sector of activity, their age, sex, location and educational level. In particular, we show that differences in cross-sectional market power are significant and higher than variations over the ten-year time span of our data. In contrast to findings of labour market power in developed countries such as the US, we document significant market power of employers in Peru vis-\`a-vis the tertiary educated workforce, regardless of age and sector. In contrast, for the primary educated workforce, market power seems to be high in (private) services and manufacturing. For secondary educated workers, only the mining sector stands out as moderately more monopsonistic than the rest of the labour market. We also show that at least for the 2010s, labour market power declined in Peru. We contrast these findings with similar estimates obtained for the United States where we are able to show that increases in labour market power are particularly acute in certain sectors, such as agriculture and entertainment and recreational services, as well as in specific geographic areas where these sectors are dominant. Moreover, we show that for the US, the labour market power has gradually increased over the past ten years, in line with the general rise in inequality. Importantly, we show that the pervasive gender pay gap cannot be linked to differential market power as men face higher labour market power than women. We also discuss possible reasons for these findings, including for the differences of labour market power across skill levels. Especially, we discuss the reasons for polarization of market power that are specific to sectors and locations.