Monopsonistic Wage Compression in Thin Labor Markets: Employer Concentration, Search Frictions, and Rent Extraction Among Low-Skill Manufacturing Workers in South-East Poland, 2015–2022

Abstract

This study examines the relationship between employer market concentration and wage compression in geographically constrained, thin labor markets across the South-East Polish manufacturing corridor. Using matched employer–employee administrative panel data spanning 2015–2022 and a Herfindahl–Hirschman Index (HHI)-based monopsony identification strategy, we estimate wage markdown elasticities via a two-stage least squares instrumental variable approach, instrumenting local labor market concentration with historical firm entry patterns. Our results indicate that a one standard deviation increase in HHI is associated with a 6.3–8.7 percentage-point reduction in the marginal revenue product–wage gap closure rate. Heterogeneity analysis reveals disproportionate rent extraction targeting female workers and those with sub-secondary educational attainment. The findings carry substantive implications for EU labor market regulation, minimum wage policy design, and antitrust enforcement frameworks in post-transitional economies.