Illustration depicting worker trapped in corporate web, representing labor market concentration.

Are You Being Underpaid? How Labor Market Concentration Affects Your Wage

Beau Callahan in Business & Economy December 2025 • 4 min read.

"New research reveals how fewer employers in your industry can lead to lower wages and fewer job opportunities."

Imagine searching for a new job in your field, only to find that a handful of companies dominate the hiring landscape. This isn't just a matter of limited opportunities; it could be directly impacting your earning potential. Economists are increasingly focused on a phenomenon known as labor market concentration, where a small number of employers control a significant portion of the jobs in a particular industry and location.

Traditionally, the idea of a perfectly competitive labor market assumes numerous employers vying for workers, driving up wages. However, the reality for many is quite different. When a few companies hold most of the cards, they can suppress wages and create what's called a "monopsony power." This means workers have fewer options and less bargaining power, leading to potentially unfair compensation.

A groundbreaking study by Martin Popp delves into the impact of labor market concentration in Germany, revealing some uncomfortable truths. Using comprehensive data, Popp's research highlights how concentrated labor markets can negatively affect wages and employment, and how minimum wage policies can have varied effects depending on the level of market concentration.

Decoding Labor Market Concentration: What It Really Means

Illustration depicting worker trapped in corporate web, representing labor market concentration.

Labor market concentration essentially measures how much of the hiring in a specific industry and location is controlled by a few companies. It’s often quantified using the Herfindahl-Hirschman Index (HHI), a common tool for assessing market competitiveness. Think of it like this: a low HHI indicates a diverse market with many employers, while a high HHI signals that a handful of firms dominate.

Popp's research reveals that labor market concentration is substantial in Germany, with over half of labor markets exhibiting high levels of concentration. This is a significant finding, suggesting that many German workers face limited employment options and potentially suppressed wages.

Fewer job options: Higher concentration means fewer companies are hiring, limiting worker choices.
Suppressed wages: Dominant firms can keep wages lower than they would be in a competitive market.
Reduced mobility: Workers find it harder to switch jobs for better pay or opportunities.

The study highlights that in the absence of minimum wage laws, companies in more concentrated markets tend to pay lower wages and employ fewer people. This suggests that companies are indeed exercising their monopsony power, taking advantage of the limited options available to workers.

A Call for Fairer Labor Practices

Popp's research provides compelling evidence that conventional minimum wage policies can have varied and often concealed impacts across different market structures. It suggests that policy interventions should be carefully tailored to address the specific dynamics of local labor markets. This could involve stricter antitrust enforcement to prevent excessive market concentration, support for worker organizing to increase bargaining power, or more nuanced minimum wage policies that account for regional and industry-specific conditions. By understanding the true impact of labor market concentration, we can strive to create a fairer and more equitable economic landscape for all workers.

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Everything You Need To Know

What is labor market concentration and why should I care about it?

Labor market concentration refers to the extent to which a small number of employers control hiring within a specific industry and location. It matters because high labor market concentration can lead to 'monopsony power,' where dominant firms suppress wages due to limited job options for workers. This can result in lower pay and reduced job mobility for individuals in affected markets. Understanding this concept helps workers recognize potential imbalances in their local job market and advocate for fairer compensation.

How is labor market concentration measured, and what does it tell me about my job prospects?

Labor market concentration is often measured using the Herfindahl-Hirschman Index (HHI). A low HHI indicates a diverse market with many employers, suggesting more competitive wages and job opportunities. Conversely, a high HHI signifies that a few firms dominate, potentially leading to suppressed wages and fewer options. Knowing the HHI for your industry and location can provide insight into whether you're operating in a market where your bargaining power is limited due to a lack of employer competition. You may also want to check how that concentration is trending over time.

What did Martin Popp's research in Germany reveal about labor market concentration?

Martin Popp's research in Germany showed that labor market concentration is significant, with over half of labor markets exhibiting high levels of concentration. His study highlights that in the absence of minimum wage laws, companies in more concentrated markets tend to pay lower wages and employ fewer people. This suggests that these companies are indeed exercising their monopsony power, taking advantage of the limited options available to workers.

How can minimum wage policies be affected by labor market concentration, and what are the implications for policy makers?

Martin Popp's research indicates that the impacts of minimum wage policies can vary depending on the level of labor market concentration. Conventional minimum wage policies can have varied and often concealed impacts across different market structures. In highly concentrated markets, the effects of minimum wage policies may be muted or even counterproductive, if not properly designed. This means policymakers need to tailor interventions to address specific dynamics of local labor markets. The implications are that a one-size-fits-all approach to minimum wage may not be effective and that stricter antitrust enforcement and support for worker organizing might be necessary complements.

Beyond minimum wage, what other measures can be taken to address the negative effects of labor market concentration and promote fairer labor practices?

To address the negative effects of labor market concentration and promote fairer labor practices, several measures beyond minimum wage policies can be considered. These include stricter antitrust enforcement to prevent excessive market concentration, which can limit the number of dominant players. Support for worker organizing can increase bargaining power, giving workers a stronger voice in wage negotiations. Additionally, nuanced policies that account for regional and industry-specific conditions can help tailor interventions to local labor market dynamics. Promoting transparency in wage data and encouraging employer diversity can also contribute to a more equitable economic landscape for workers.