Monopsony in Spatial Equilibrium

An emerging labor economics literature studies the consequences of firms exercising market power in local labor markets. These monopsony models have implications for trends in earnings inequality. The extent of this market power is likely to vary across local labor markets. In choosing what local labor market to live and work in, workers tradeoff wages, rents and local amenities. Building on the Rosen/Roback spatial equilibrium model, we investigate how the existence of local monopsony power affects the cross-sectional spatial distribution of wages and rents across cities. We find an elasticity of land prices to employment concentration of –0.037—similar to Rinz (2018) reported elasticity of compensation. For renters, this offsets the monopsony wage effect and shifts part of the incidence of monopsony to homeowners.