The wage-setting power of firms: Rent-sharing and monopsony in South Africa

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.Abstract: Using administrative tax records from South Africa for the period 2011-14, I find that firm wage premia explain 25 per cent of the total wage variance, 60 per cent of the gender wage gap, and 40 per cent of the gap between workers in the middle and the bottom of the income distribution. Next, I argue that in contrast to the rent-sharing literature, many studies of monopsony fail to use firm-level wage variation. I address this by using the estimated firm wage premia to estimate how wages are related to rent-sharing and monopsony power. I find that the average worker switching from a firm in the 25th percentile to the 75th percentile in profitability is paid 32 per cent more; and that the same switch across the distribution of monopsony, as measured by the Herfindahl-Hirschman Index in industry-by-local labour market hires, decreases wages by 10 per cent on average. When monopsony is measured using a separations approach, I find a labour supply elasticity of 0.75, suggesting substantial wage-setting power. Finally, I provide additional evidence supporting the applicability of the monopsony model in explaining these results. Differences in labour supply elasticities across gender and income groups account remarkably well for the corresponding average gaps in firm wage premia, and unions substantially increase rent-sharing in firms.

The impact of centralized bargaining on spillovers and the wage structure in monopsonistic labour markets

“…I estimate here that nearly half of the gender wage gap is accounted for by net differences in firm average wages as opposed to net differences in the own-wage gap. This is consistent with my previous analysis in Bassier (2019), where I similarly estimated that nearly half of the gender wage gap is accounted for by differences in the types of firms women are at compared to men (as measured by AKM firm wage premia).…”

“…Average separations decrease by about 2 per cent at the event year (statistically significant in event years 0 and 1), after flat pretrends. Interpreted directly, this implies a firm labour supply elasticity of about 1.5, which suggests considerable monopsony power in line with Bassier (2019). 10 However, this is very likely biased as an estimate of a reduction in turnover since I cannot differentiate between voluntary quits and involuntary fires.…”

Measuring earnings inequality in South Africa using household survey and administrative tax microdata

“…I interrogate this implausible result in the context of earnings imputation in the QLFS below. Bassier (2019) undertook a brief comparison of some percentiles in the IRP5 data and the household surveys in PALMS and found that they roughly corresponded (Bassier 2019: 5). I undertake a more thorough comparison in the analysis in this paper.…”

“…As I describe in more detail below, matched firm and worker data for South Africa from SARS, similar to the data used by Song et al (2019) and Alvarez et al (2018), was recently made available to researchers through a project between SARS, the South African National Treasury, and UNU-WIDER. Bassier (2019) used this data and a decomposition from Abowd et al (1999) to document that firm wage premia accounted for 25 per cent of the variance of workers' wages. Bhorat et al (2017) undertook a similar decomposition and found this to be 13 per cent.…”

The impact of employment protection on the temporary employment services sector: Evidence from South Africa using data from tax records

“…3 There have only been a handful of research papers that have used these data in the past five years. The research has mostly covered job flows (Kerr 2018), the employment tax incentive (Chatterjee and Mcleod 2016;Ebrahim and Pirttilä 2019;Ebrahim et al 2017), and wage inequality among employees (Bassier 2019;).…”