The objective of this thesis is to estimate the impact of labour market monopsony on wages and examine how this impact varies with the level of collective bargaining. During wage negotiations, firm-level contracting reflects the employee’s power, whereas labour market concentration reflects the employer’s power. The wage outcome of this bargaining depends on the relative strength of the two negotiating parties. Monopsony power, an imperfection in the labour market, refers to a market dominated by a small number of companies, where workers have limited alternatives and tend to compromise on wages. Employers in such markets hold excessive power, paying employees less than their marginal revenue product. In the European context, there are three levels of collective bargaining: national-level (highly centralized), sectoral-level (medium centralized), and firm-level (decentralized). Decentralized collective bargaining is often associated with a wage premium in various labour markets.
As wages in monopsonistic labour markets are lower than in competitive labour markets and firm-level bargaining is usually associated with a wage premium, decentralized collective bargaining could mitigate the wage losses associated with labour market monopsony. The abnormal profits in monopsonistic labour markets create room for rent-sharing that can be extracted by labour unions. However, the fact that such labour markets are dominated by a small number of firms puts pressure on the ability of labour unions to extract these rents.