Elie Vidal-Naquet (HEC Paris) – Mass layoffs and local monopsony power

This paper investigates the impact of mass layoffs on firms’ wage-setting power within local labor markets. Using a sample of French firms, I estimate firm-level markdowns – the ratio of marginal revenue product of labor over wages – capturing monopsony power. Using exhaustive matched employer-employee data to identify mass layoffs. I use a difference-in-differences strategy to estimate the effect of mass layoff on markdowns. Mass layoffs increase local firms’ markdowns by 3%, with a more pronounced effect observed for firms close to the mass layoff (less than 2.5 km). This impact is stronger in less dense local labor markets, implying shocks to local markets exacerbate disparities in monopsony power between regions. This increase in monopsony power is partly driven by displaced workers’ distaste for long-distance reallocation, increasing local firm market power.