Monopsony and the Wage Effects of Migration
2025-07-03
If labour markets are competitive, migration can only affect native wages via marginal products. But under imperfect competition, migration may also increase wage mark-downs—if firms have greater monopsony power over migrants than natives, but cannot perfectly wage discriminate. While marginal products depend on relative labour supplies across skill cells, mark-downs depend on migrant concentration within them. This insight can help rationalise empirical violations of canonical migration models. Using US data, we conclude that migration does increase mark-downs: this expands aggregate native income, but redistributes it from workers to firms. Policies which constrain monopsony power over migrants can mitigate these adverse wage effects.