May 2024

IZA DP No. 16999: Monopsony and Local Religious Clubs: Evidence from Indonesia

Peter Brummund, Michael D. Makowsky

Participation in social groups ties members to local communities. Employers can capture these benefits as rents when geographically-specific club goods raise the cost of labor mobility. We measure ties to local clubs using the shares of households identifying with a minority religion, enrollment of children in Islamic schools, and membership in secular savings clubs. We identify larger wage markdowns where households have stronger ties to local club goods. Complementarity between labor market concentration and club goods offers an explanation of rising wage markdowns absent increasing concentration, while adding to the difficulty in separating monopsony rents from compensating wage differentials.