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

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

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Beau Callahan in Business & Economy October 2026 • 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.

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Concentration and Wage Suppression

Research examines how regional labor-market monopsony may contribute to declining industry labor shares. One study develops and tests a mechanism in which increased labor-market concentration reduces the labor share through wage suppression under monopsony conditions. Related work takes a task-based approach to estimate the causal effect of concentration in demand for skills on labor-market outcomes. Using CareerBuilder.com data, another study calculates labor-market concentration across more than 8,000 geographic-occupational labor markets in the United States.

Measuring Concentration Carefully

Labor-market concentration can be studied by examining how many employers compete for workers in a defined market. The choice of geographic area, occupation, skills, and data source can materially affect the result. Because available methods may capture different dimensions of employer power, findings should be interpreted cautiously rather than treated as a complete measure of wage-setting conditions.

The Monopsony Framework

The concept of monopsony provides a longstanding framework for analyzing situations in which employers possess wage-setting power. Its application to labor-market concentration has developed alongside efforts to measure employer competition more precisely. The historical record is best understood as an evolving research tradition rather than a single definitive discovery.

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.
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Task-Based Research

Recent research extends the study of monopsony by examining the demand for job skills and tasks, not only industry or occupation concentration. This approach seeks to estimate the causal effect of concentration in skill demand on labor-market outcomes. The NBER study also argues that earlier approaches may overstate monopsony power because worker skills can be substitutable.

Limits of Simple Measures

A central limitation identified in recent research is that industry and occupation concentration may not accurately represent the degree of monopsony power. If workers' skills are substitutable, employers may face more competition for talent than broad industry or occupation measures suggest. This criticism does not eliminate concerns about employer power, but it cautions against drawing strong conclusions from a single concentration measure.

Different Market Definitions

Studies compare labor markets using different units of analysis, including industries, occupations, skills, geographic areas, and combinations of geography and occupation. The CareerBuilder.com study illustrates a broad geographic-occupational approach covering more than 8,000 U.S. labor markets. The task-based NBER research instead emphasizes substitutable worker skills, showing why estimates may differ when researchers define competition in different ways.

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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What Worker Discussions Reveal

Discussions in the Microsoft Rewards subreddit describe workers or users combining rewards from the website, Microsoft Start App, Xbox App, console Rewards App, daily bonuses, streaks, and weekly Xbox points. Other Reddit posts focus on quiz answers and warn that incorrect answers can prevent users from receiving points. These posts illustrate how participants pay close attention to the detailed rules and incentives attached to a platform, although they do not directly establish evidence about labor-market concentration or wages.

More Precise Evidence

Future research may place greater emphasis on how skills can substitute across employers and occupations. It may also continue combining geographic, occupational, industry, and task-based information to define labor markets more precisely. Such developments could help distinguish genuine monopsony power from concentration measures that overstate employer control.

Institutions and Labor Data

The U.S. Bureau of Labor Statistics is the federal government's principal fact-finding agency for labor economics and statistics. Labor institutions also operate at the state and federal levels: Washington's Department of Labor & Industries provides agency programs and services, while the U.S. Department of Labor administers laws involving occupational safety, wage and hour standards, unemployment benefits, and reemployment services. Labor Day's origins in the Central Labor Union and the Knights of Labor reflect the broader historical role of organized labor in public discussions of workers' conditions.

Worker Bargaining Power

When workers face limited employer choice, their ability to negotiate wages may be constrained. The effects can vary depending on the skills workers possess, the employers competing for those skills, and the geographic area in which jobs are available. This makes labor-market concentration a practical issue for workers, not only an abstract measure used in economic research.

How wage estimates compare across labor markets

For Australia, back-of-the-envelope estimates suggest concentration’s increase was associated with wages averaging just under 1% lower in 2011–2015 than in a scenario where concentration had not increased. These figures address different changes and settings, so they are not direct estimates of the same effect.[1]

The estimates behind the comparisons

  • 3.75; 1.27 elasticity estimateAcross the monopsony studies in a meta-analysis, the mean estimated labor-supply elasticity was 3.75, while the median was 1.27. The gap shows that the mean is higher than the midpoint estimate; weighting studies equally produced a similar pattern.[2]

What employer power and merger evidence indicate

Monopsony power means a firm can influence the wage it pays. With some power, a firm may offer less than the market rate and still attract workers; the wage outcome therefore depends on whether workers have alternatives.[1]

Evidence from hospital mergers tracks wage and employment changes after a potential increase in employer power, but its scope is limited to hospitals. Related evidence across more industries found more job departures from recently merged employers, without identifying whether downsizing, quits, or another mechanism caused them. These studies illuminate possible effects of mergers, not a current economy-wide average wage loss.[3]

The estimated employment effect of a minimum wage becomes more positive as concentration rises in the model described by the source. That prediction rests on the premise that concentrated markets have wages below marginal productivity; it does not establish the same outcome in every market.[4]

The effect of employer concentration may be weaker where workers can move more easily between occupations, because that mobility expands their outside options. Thus, concentration alone does not capture how readily workers can find alternatives.[1]

What the estimates leave unresolved

  • How much does occupational mobility change the wage effects of concentration across different kinds of work? The evidence links greater mobility with a weaker concentration effect, but does not establish that this relationship is identical in every labor market.[1]

Sources

  1. RDP 2023-02: Did Labour Market Concentration Lower Wages Growth Pre-COVID? | RBA (www.rba.gov.au)
  2. Monopsony in Labor Markets: A Meta-Analysis (docs.iza.org)
  3. THE STATE OF LABOR MARKET COMPETITION (home.treasury.gov)
  4. www.restud.com (www.restud.com)

About this Article -

Written with AI assistance from published research, and reviewed by the Mystum team. See our About page for more information.

Everything You Need To Know

1

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.

2

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.

3

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.

4

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.

5

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.

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