IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwq/87536.html
   My bibliography  Save this paper

Oligopsonies over the Business Cycle

Author

Listed:
  • Daniel Monte
  • Roberto Pinheiro

Abstract

With a duopsony model, we show how the degree of labor market slack relates to earnings inequality and firm size distribution across local labor markets and the business cycle. In booms, due to the high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving in or out of a recession, there is an “accommodation” phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We show that the impact of economic shocks on wage dispersion and inequality may vary not only due to the nature of the shock, but also based on which equilibrium the economy may have settled in.

Suggested Citation

  • Daniel Monte & Roberto Pinheiro, 2020. "Oligopsonies over the Business Cycle," Working Papers 20-06, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:87536
    DOI: 10.26509/frbc-wp-202006
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-wp-202006
    File Function: Full Text
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-wp-202006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mary C. Daly & Bart Hobijn, 2014. "Downward Nominal Wage Rigidities Bend the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(S2), pages 51-93, October.
    2. Azar, José & Marinescu, Ioana & Steinbaum, Marshall & Taska, Bledi, 2020. "Concentration in US labor markets: Evidence from online vacancy data," Labour Economics, Elsevier, vol. 66(C).
    3. Stéphane Bonhomme & Laura Hospido, 2017. "The Cycle of Earnings Inequality: Evidence from Spanish Social Security Data," Economic Journal, Royal Economic Society, vol. 127(603), pages 1244-1278, August.
    4. Booth, Alison L. & Coles, Melvyn, 2007. "A microfoundation for increasing returns in human capital accumulation and the under-participation trap," European Economic Review, Elsevier, vol. 51(7), pages 1661-1681, October.
    5. Bhaskar, V & To, Ted, 1999. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Economic Journal, Royal Economic Society, vol. 109(455), pages 190-203, April.
    6. Michael W. L. Elsby & Gary Solon, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 185-201, Summer.
    7. Efraim Benmelech & Nittai K. Bergman & Hyunseob Kim, 2022. "Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 200-250.
    8. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    9. Stéphane Bonhomme & Laura Hospido, 2017. "The Cycle of Earnings Inequality: Evidence From Spanish Social Security Data," Economic Journal, Royal Economic Society, vol. 127(603), pages 1244-1278.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel Monte & Roberto Pinheiro, 2021. "Labor market competition over the business cycle," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1593-1615, October.
    2. David W. Berger & Kyle F. Herkenhoff & Andreas R. Kostøl & Simon Mongey, 2023. "An Anatomy of Monopsony: Search Frictions, Amenities, and Bargaining in Concentrated Markets," NBER Chapters, in: NBER Macroeconomics Annual 2023, volume 38, National Bureau of Economic Research, Inc.
    3. Gregor Jarosch & Jan Sebastian Nimczik & Isaac Sorkin, 2019. "Granular Search, Market Structure, and Wages," NBER Working Papers 26239, National Bureau of Economic Research, Inc.
    4. David Berger & Kyle Herkenhoff & Simon Mongey, 2022. "Labor Market Power," American Economic Review, American Economic Association, vol. 112(4), pages 1147-1193, April.
    5. Jahn, Elke & Hirsch, Boris, 2012. "Is there monopsonistic discrimination against immigrants? First evidence from linked employer employee data," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 65417, Verein für Socialpolitik / German Economic Association.
    6. Anastasia Burya & Rui Mano & Mr. Yannick Timmer & Miss Anke Weber, 2022. "Monetary Policy Under Labor Market Power," IMF Working Papers 2022/128, International Monetary Fund.
    7. Booth, Alison L., 2014. "Wage determination and imperfect competition," Labour Economics, Elsevier, vol. 30(C), pages 53-58.
    8. Callaci, Brian & Gibson, Matthew & Pinto, Sergio & Steinbaum, Marshall & Walsh, Matt, 2023. "The Effect of Franchise No-Poaching Restrictions on Worker Earnings," IZA Discussion Papers 16330, Institute of Labor Economics (IZA).
    9. Alan Manning, 2021. "Monopsony in Labor Markets: A Review," ILR Review, Cornell University, ILR School, vol. 74(1), pages 3-26, January.
    10. Jaime Arellano-Bover, 2024. "Career Consequences of Firm Heterogeneity for Young Workers: First Job and Firm Size," Journal of Labor Economics, University of Chicago Press, vol. 42(2), pages 549-589.
    11. Albert Jan Hummel, 2021. "Monopsony Power, Income Taxation and Welfare," CESifo Working Paper Series 9128, CESifo.
    12. Albert Jan Hummel, 2021. "Monopsony power, income taxation and welfare," Tinbergen Institute Discussion Papers 21-051/VI, Tinbergen Institute.
    13. Duanmu, Jing-Lin & Norbäck, Pehr-Johan & Lu, Jane Wenzhen & Clegg, Jeremy, 2022. "Contraction under minimum wages? Operational and financial advantages of multinational subsidiaries in China," International Business Review, Elsevier, vol. 31(2).
    14. José Azar & Emiliano Huet-Vaughn & Ioana Marinescu & Bledi Taska & Till von Wachter, 2019. "Minimum Wage Employment Effects and Labor Market Concentration," NBER Working Papers 26101, National Bureau of Economic Research, Inc.
    15. Boris Hirsch & Elke J. Jahn & Alan Manning & Michael Oberfichtner, 2022. "The Urban Wage Premium in Imperfect Labor Markets," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 111-136.
    16. Manuel Arellano & Stéphane Bonhomme & Micole De Vera & Laura Hospido & Siqi Wei, 2022. "Income risk inequality: Evidence from Spanish administrative records," Quantitative Economics, Econometric Society, vol. 13(4), pages 1747-1801, November.
    17. Garcia-Louzao, Jose & Hospido, Laura & Ruggieri, Alessandro, 2023. "Dual returns to experience," Labour Economics, Elsevier, vol. 80(C).
    18. Bruce Fallick & Michael Lettau & William L. Wascher, 2016. "Downward Nominal Wage Rigidity in the United States during and after the Great Recession," Working Papers (Old Series) 1602, Federal Reserve Bank of Cleveland.
    19. Virginia Sanchez Marcos & Ezgi Kaya & Nezih Guner, 2017. "Labor Market Frictions and Lowest Low Fertility," 2017 Meeting Papers 1015, Society for Economic Dynamics.
    20. J. Ignacio Conde-Ruiz & Manu García & Luis A. Puch & Jesús Ruiz, 2019. "Calendar effects in daily aggregate employment creation and destruction in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(1), pages 25-63, March.

    More about this item

    Keywords

    Labor Market Slack; Wage Inequality;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwq:87536. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.