Monopsony power in the United States: Evidence from the great depression

Abstract

This paper presents evidence that firms had labor market power during the early 1930s. Using plant-level data from the Census of Manufactures between 1929 and 1935, I construct a Herfindahl-Hirschman Index of local labor market concentration at the State-Economic-Area-by-industry-by-occupation level. I find that local labor market concentration has a negative relationship with wages which is consistent with labor market monopsony power. The results are robust to excluding local labor markets with one firm, excluding industries with local product markets, as well as the inclusion of industry characteristic, SEA, and occupational time trends. I find evidence that New Deal minimum wage policies weakened monopsony power. I also find suggestive evidence that high unemployment rates during 1930 reduced workers’ bargaining power.