Abstract

We develop a model where labor market structure affects the division of surplus between firms and workers. In a model of random search and large employers, workers might apply to another job controlled by the same employer in the future. This possibility endows firms with size-based market power. The reason is that outside options are truly outside the firm: firms do not compete with their own vacancies. Hence, a worker’s outside option is worse when bargaining with a larger firm, and wages depend on market structure. We calibrate the model to Austrian data and find that such size-based market power depresses wages.