Employer Concentration and the Breakdown of the Phillips Curve

This article explores whether rising employer market power explains the flattening of the Phillips curve—the weak response of wages to low unemployment—observed in advanced economies post-2010. Combining administrative payroll data with firm-level job vacancy data for the United States (2005–2024), we construct local labor market concentration indices (Herfindahl-Hirschman Index by commuting zone and industry). A one-standard-deviation increase in employer concentration reduces the wage-unemployment elasticity by 37%. In highly concentrated markets (e.g., retail, healthcare, hospitality), unemployment can fall to 3% without triggering wage growth, whereas competitive markets show traditional tight Phillips curve relationships. Instrumental variable estimates using merger shocks confirm causality. The findings imply that antitrust enforcement and policies promoting worker mobility (e.g., non-compete bans) may be necessary to restore monetary policy’s wage transmission channel.