Dynamic monopsony with large firms and an application to non-competes

Axel Gottfries, Gregor Jarosch

Research output: Working paper

Abstract / Description of output

How do anti-competitive practices such as non-compete and no-poaching agreements affect wages and employment? To assess this, we build a tractable framework of wage posting with on-the-job search that has large employers. We show formally how market structure affects wages, profits, and employment and that non-compete scan sharply hurt workers, effectively restoring the Diamond Paradox. The quantitative model captures existing empirical evidence on the impact of mergers on employment and wages. Banning non-competes can result in large wage increases, typically when the demand elasticity is low, training cost are high, markets are highly granular, and when non-competes are wide-spread. Increased worker turnover typically lead to a small associated total output loss of about.5%.
Original languageEnglish
Publication statusE-pub ahead of print - 21 Apr 2023


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