The impacts of high-speed Internet access on monopsony power

While the literature on the Internet’s economic impact often focuses on skill-biased technological change, less is known about its effect on employer market power. This article asks whether the arrival of high-speed Internet can weaken firms’ monopsony power, particularly in a developing country context. Using firm-level data from China and leveraging the quasi-exogenous expansion of broadband Internet around the year 2000 in a difference-in-differences design, we find that broadband access leads to a significant reduction in firm-level wage markdowns. This effect is driven by four channels: reduced search frictions, increased labor mobility, enhanced firm entry, and stronger worker bargaining power. The resulting decline in labor market power is associated with a higher labor share of income and an increased pass-through of productivity gains to wages. Our findings challenge the conventional view that information and communications technology exacerbates inequality, demonstrating that by promoting labor market competition, it can also have a significant pro-labor equalizing effect.