A human capital theory of who escapes the grasp of the local monopsonist

Abstract

In local labor markets where firms exercise monopsony power, workers lose out in terms of earnings and job satisfaction as they have fewer and less attractive job options to choose from. High skilled mobile workers can avoid monopsony costs by moving to other more competitive local labor markets. Counties with concentrated labor markets are predicted to experience a “brain drain” over time. Using data over 4 decades, we document this deskilling and loss of high-income workers associated with local monopsony power. We explore private and public policy strategies for helping workers to adapt to the costs imposed by local monopsony.