Abstract

Imperfect competition is recognized as an important feature of the labor market (Manning, 2011, 2021; Card, 2022). When workers are not perfectly mobile across employers, the latter expect a modest labor supply response to wage cuts and can profitably set wages below the marginal products of labor. Existing estimates suggest that monopsony causes an economic-wide wage markdown (the gap between wages and marginal product of labor) of 12-21 percent (Sokolova and Sorensen, 2021; Azar, Berry, and Marinescu, 2022). To facilitate competition and reduce inequality, it is important for economists and policymakers to understand the nature of labor market monopsony. In this project, we propose that commuting costs play an important role in labor market monopsony by limiting workers' physical mobility. In particular, we will quantitatively examine the contribution of commuting costs to firm-specific labor market power and wage inequality across firms and regions, and discuss potential labor market policies to enhance competition.