The Evolution and Influencing Factors of Labor Market Monopsony in China's Manufacturing Sector: Based on the Production Function Approach

Using the production function approach, this paper examines the evolution and determinants of labor market monopsony in China's manufacturing sector. We find that monopsony power slightly declined from 2008 to 2016 in China. There are significant variations in its magnitude and trends across industries and ownership types, and monopsony power across cities shows a clear convergence trend. By 2016, the wage markdown in China's manufacturing sector was 1.98, meaning that for every 1 yuan of revenue generated, workers received nearly 0.5 yuan in return, indicating that labor income remains relatively disadvantaged. Moreover, firm's monopoly power significantly reduces its monopsony power, whereas firm size, capital-labor ratio, and productivity significantly increase it. Additionally, we find that monopsony power lowers firm's labor income share by reducing both employment and wages.