When firm productivity or product demand rises, workers typically share in the gains through higher wages or expanded employment. We show that for firms under monopsony with a binding minimum wage, this link from firm gains to worker outcomes breaks sharply. Revenue-productivity improvements raise revenues but not wages or employment: firms simply maintain the minimum wage and absorb the gains into higher wage markdowns. We find compelling evidence for these predictions using South African administrative data, based on a cross-sectional kink design as well as within-firm responses to internal and shift-share trade shocks. These results reveal a previously overlooked monopsonistic margin - productivity -induced markdown adjustment - and we show using a structural model that this substantially diminishes the intended returns of policies such as employment subsidies.

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13 November 2025     Paper Number CEPDP2134

Download PDF - When do employers share? Rent sharing, monopsony and minimum wages

This CEP discussion paper is published under the centre's Labour programme.

This publication comes under the following theme: Labour market dynamics