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Estimating the elasticity of labor supply to a firm: results from a field experiment

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  • Robert Tucker Omberg

Abstract

‘New Monopsony’ models imply that firms can possess wage-setting power even in competitive markets so long as they face an upward-sloping labour supply curve due to labour market frictions. However, previous research has yielded wildly different estimates of the elasticity of labour supply to a firm. Using a field experiment where identical job offers were posted with varying wages in statistically matched areas, I estimate that the elasticity of labour supply to a restaurant to be quite high, between 11.6 and 20.9, implying that workers are hired at wages between 92% and 95% of their marginal products. These results provide evidence for a model where firms only possess wage-setting power over incumbent employees, while new employees are hired at wages close to their marginal products. The policy implications of such a model are discussed.

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  • Robert Tucker Omberg, 2023. "Estimating the elasticity of labor supply to a firm: results from a field experiment," Applied Economics Letters, Taylor & Francis Journals, vol. 30(7), pages 913-918, April.
    • Handle: RePEc:taf:apeclt:v:30:y:2023:i:7:p:913-918
    DOI: 10.1080/13504851.2022.2030030
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