Abstract

Labor market concentration, as one approach to measure the degree of monopsonistic competition (Azar et al., 2019), has been used to study the influence of employer power on workers’ wages in thin local labor markets (i.e., Bassanini et al., 2024; Rinz, 2022). While local labor markets are often defined by commuting zones and industries, studies with German administrative data might mismeasure local labor market concentration, because establishment ownership cannot be distinguished beyond municipalities (Todd & Heining, 2024, p. 4). Similarly, plant ownership can also not be differentiated for industries broader than five-digit coding. Therefore, I aim to investigate how the concentration effect on wages changes when plant ownership can be (partially) considered. So far two studies have analyzed the relationship between labor market concentration and wages in Germany. Popp (2021) investigated all sectors throughout the whole country between 1999 and 2017 and reported substantial employer concentration for different measurements of concentration or local labor market definitions. With an instrumental variable approach pioneered by Azar et al. (2022) to account for the endogeneity of concentration and wage variation not stemming from competition changes, he showed that an increase in concentration significantly reduces earnings. These results were bolstered by Bassanini et al. (2024) who also found a significant negative relation of concentration and wages in Germany between 2012 and 2018 using a similar identification approach. Regarding the research question, Bassanini et al. (2024, 8–9) have further shown that in Denmark, France, Italy, Portugal and Spain labor market concentration based on firm-by-municipality identifiers is highly correlated with concentration based on observable establishment ownership.