The Role of Composition in Assessing Labor Market Power: Evidence from a Retail Pharmacy Merger

I use a merger event between two large retail pharmacy chains to detect labor market power within firms. Initially, I establish that variations in labor force com-position within establishments are common across the economy over time. This motivates an empirical strategy that controls for changes in composition by con-sidering both observable and unobservable worker characteristics. The results indi-cate that increased concentration reduces wages for salespeople (low-skill) but has no significant impact on pharmacists (high-skill). Notably, these findings change considerably if changes in composition are not accounted for, underscoring the im-portance of such considerations in studies tracking establishments over time and serving as a cautionary note for other researchers in the field.