Description:
I study how labor market power affects firm wage differences using German manufacturing sector firm-level data (1995-2016). In past decades, labor market power increasingly moderated rising between-firm wage differences. This is because high-paying firms possess high and increasing labor market power and pay wages below competitive levels, whereas low-wage firms pay competitive wages. Over time, large, high-wage, high-productivity firms generate increasingly large labor market rents while selling on comparably competitive product markets. This provides novel insights on why such “superstar firms” are profitable and successful. Using micro-aggregated data covering most economic sectors, I validate key results for multiple European countries