Monopsony in the Korea Labor Market

Abstract

This study measures the markdown, an indicator of monopsony power, in the labor market from 2000 to 2019 using Korean firm data, and examines the relationship with the labor share. Under the cost minimization, the expressions for markdown and mark-up were derived, and markdown was identified by distinguishing it from markup. Results show that the markdown was 2.71 on average in the 2000s and 3.56 in the 2010s. Firm's monopsony power in the labor market is very large. Labor markdown has a strong correlation with corporate sales. In the 2010s, the monopsony powers in labor market by small or medium firms were on the decline, while the monopoly powers by large firms remained high. According to the estimation results, monopoly and monopsony power negatively affect the labor share.