Abstract:

I develop a general-equilibrium oligopsony model in which firms differ in their demand
for worker ability, generating worker-specific monopsony power. Using matched employer
employee data for Italy and Germany, I document that high-ability workers are sorted into
high-productivity firms, while low-ability workers are segregated into low-productivity firms.
Thisdemandheterogeneityweakensthelinkbetweenfirmproductivityandmonopsonypower.
Monopsony and associated welfare losses are largest for low- and high-ability workers, espe
cially the latter. Labor-market power amplifies wage inequality: its widening of between
market wage dispersion outweighs its compression of assortative matching and top wages.