Granular Search, Market Structure, and Wages

Gregor Jarosch, Duke University and NBER, Jan Sebastian Nimczik, ESMT Berlin and IZA, and Isaac Sorkin, Stanford University and NBER

We develop a model of size-based market power in a frictional labor market. In the canonical search environment, competition for workers is encoded in outside options. In our granular setting, large employers remove their own job postings from their workers’ outside option. Thus, size gives market power and a more concentrated market structure depresses wages because it reduces competition for workers. We calibrate the model to Austrian data and find that such size-based market power depresses wages by about 2.6%, or 1500 euros annually per worker.