Monopsony in spatial equilibrium

Abstract

An emerging labor economics literature examines the consequences of firms exercising market power in local labor markets. The extent of this market power is likely to vary across local labor markets. In choosing what local labor market to live and work in, workers tradeoff wages, house prices and local amenities. Building on the Rosen/Roback spatial equilibrium model, we investigate how the existence of local monopsony power affects the cross-sectional spatial distribution of house prices across cities. We find that house prices decline with increases in the employment concentration in the local market. For renters, this offsets roughly 70 percent of the estimated monopsony wage effect and shifts part of the costs of monopsony to homeowners. We find evidence that collective bargaining and minimum wages limit the extent of capitalization of monopsony power into house prices.