Project description
Wage-setting power and inequality
In today’s labour markets, many employers can set wages below the level prevailing in other firms without fear of losing workers. This market power (monopsony) permits paying workers less than the value of what they produce and exposes them to job-related health risks. This model is also characterised by reduced employment levels in contrast to competitive markets. In this context, the ERC-funded MARKINDOWN project aims to unravel the sources of monopsony power and its impacts across diverse socio-economic groups. From unveiling hidden anticompetitive practices to scrutinising the effect of information gaps on job choices, the project is a comprehensive endeavour promising insights that could reshape policies.
Objective
What is the role played by monopsony (monopoly power in the demand for labor) in widening earning inequalities? Recent studies documented the pervasiveness of monopsony power in modern labor markets. Monopsonistic employers can cut wages without losing workers to competitors, pay labor below its productivity and hire fewer workers than in a competitive labor market. The equilibrium is inefficient as the surplus given by market power is lower than the surplus extracted from workers who are also exposed to excessive work injury risk. Monopsony contributes to explain declining labor shares of income, persistently high levels of workplace accidents, and limited disemployment effects of minimum wages. Much less is known about the role of monopsony in increasing earning inequality. This project aims at filling this gap by i) contributing to a better understanding of the sources of monopsony power and ii) assessing their relevance across different socio-economic groups.
Monopsony power can be due to anticompetitive arrangements introduced often in a non-transparent way in labor contracts.Another source of monopsony power is lack of information on alternative job opportunities. Frictions in the matching of workers and vacancies may discourage risk averse workers when planning to quit the firm after wage cuts. Spatial mismatch in the allocation of jobs and quitters may increase monopsony power vis-à-vis workers having a stronger distaste for commuting. Some groups of workers may also have stronger cognitive biases when interpreting available information on outside opportunities. The three parts of the project will i) assess the incidence of anticompetitive arrangements in Europe, ii) estimate firm-level labor supply elasticities across different categories of workers, and iii) using survey and experimental methods, evaluate to what extent the heterogeneity among socio-economic groups of willingness to quit a low-paid job is related to lack of information or cognitive biases.
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Keywords
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Project’s keywords as indicated by the project coordinator. Not to be confused with the EuroSciVoc taxonomy (Fields of science)
Programme(s)
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Multi-annual funding programmes that define the EU’s priorities for research and innovation.
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HORIZON.1.1 - European Research Council (ERC)
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Topic(s)
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Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
HORIZON-ERC - HORIZON ERC Grants
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Call for proposal
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Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
(opens in new window) ERC-2022-ADG
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20136 Milano
Italy
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