About this event
Solid evidence shows that inadequate managerial practices in SMEs hamper technology adoption and growth, yet less is known about why small and relatively inefficient firms persistently survive in large numbers. This paper proposes a novel perspective based on labour market power, which can affect aggregate productivity through three channels: (i) by transferring rents from workers to firms, monopsony leads to an excessive entry of low-ability entrepreneurs; (ii) by establishing a positive wage-size relationship, it reduces the labour costs of smaller firms and induces misallocation; and (iii) by distorting the size distribution, it hinders the diffusion of intangible technologies with economies of scale. I measure wage markdowns from revenue function estimation, validate the theoretical predictions with micro data, and quantify productivity losses through a general equilibrium model. Lastly, I explore the potential of unionisation and minimum wages in mitigating these outcomes.
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