Effect of market concentration on wages: evidence from the manufacturing industry (2002-2017)

Abstract

The literature points to labor market concentration as a valid measure of companies' market power over the workforce. Empirical evidence of this association is focused on developed countries, limiting the analysis for developing nations. Thus, this study estimated the effect of labor market concentration, measured by the Herfindahl-Hirschman Index (HHI), on the average wages of Manufacturing Industry workers for the period from 2002 to 2017, using RAIS/ME microdata. The data show that 78.49% of highly concentrated establishments represent 87.83% of national employment. The results indicated that a 1% increase in labor market concentration is associated with a 0.089% reduction in real average wages, with no significant wage differentials between municipalities with absolute monopsony power and those with a concentration degree below one.