Firm Wage Premia, Rent-Sharing and Monopsony When Underemployment is High
How important are firms in the labour markets of developing countries? Using matched employer-employee data from South Africa, I find firms explain a larger share of wages than in other, richer countries. I show this can be parsimoniously explained by the high degree of underemployment. Estimating separations elasticities by instrumenting wages of matched workers with firm wages, among other methods, I find a low separations elasticity which generates a high degree of monopsony. The correspondingly high estimated rent-sharing elasticity explains the important role of firm wage policies, even in an economy with a large labour surplus. This paper is a work in progress.