Labor-Market Concentration and Earnings: Evidence from Chile

Jun 9, 2021

This paper studies the effect of labor market concentration on earnings in Chile over 2005- 2019. The paper has three main results. First, it documents a negative relationship between local employment concentration and firms’ average wages. Second, it shows that labor market concentration affects more negatively the earnings of high-wage workers. As a result, within-firm earnings dispersion declines with employment concentration. Finally, it shows that workers’ earnings are affected differently by employment concentration depending on their employers’ degree of product market power—measured in terms of price-cost markup. The paper finds a more moderate negative effect of labor market concentration on workers’ earnings in high-markup firms. This result suggests that high-markup firms use their higher rents in more concentrated labor markets both to retain and attract more productive, high-skill workers.

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