Brown Bag Seminar Industrial Economics

How are market imperfections in different input markets related? I show theoretically that the extent of buyer power in intermediate input markets determines both wages and wages relative to the marginal revenue contribution of employees if collective bargaining characterizes labor markets. This relationship is examined empirically using data on the universe of Dutch manufacturing firms from 2007 to 2018. I find that buyer power for intermediates is widespread and can explain a substantial portion of within-industry-year wage dispersion. In years where firms have more buyer power, they overpay their employees more relative to their revenue contribution, suggesting that collective bargaining allows workers to extract rents from their employers. Using exchange rate shocks to instrument for buyer power, I find that buyer power indeed increases wages, both in absolute terms and relative to employees' marginal revenue contribution.