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Labor Market Power and Development

Author

Listed:
  • Tristany Armangué-Jubert
  • Nezih Guner
  • Alessandro Ruggieri

Abstract

Imperfect competition in labor markets can lead to efficiency losses and lower aggregate output. This paper examines how variations in labor market competitiveness may account for differences in GDP per capita among countries. By structurally estimating an oligopsony model with free entry across different development stages, we find that labor market power increases with GDP per capita. Wage markdowns vary from 54 percent in low-income countries to around 24 percent in the richest ones. If labor markets in poorer countries were as competitive as in more developed ones, their output per capita could rise by up to 44 percent.

Suggested Citation

  • Tristany Armangué-Jubert & Nezih Guner & Alessandro Ruggieri, 2025. "Labor Market Power and Development," American Economic Review: Insights, American Economic Association, vol. 7(2), pages 177-195, June.
    • Handle: RePEc:aea:aerins:v:7:y:2025:i:2:p:177-95
    DOI: 10.1257/aeri.20230564
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    References listed on IDEAS

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    1. Markus Poschke, 2018. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 1-41, July.
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    Cited by:

    1. Ihsaan Bassier & Joshua Budlender, 2025. "When do employers share? Rent sharing, monopsony and minimum wages," CEP Discussion Papers dp2134, Centre for Economic Performance, LSE.
    2. Tristany Armangue-Jubert & Tancredi Rapone & Alessandro Ruggieri, 2026. "Firm Dynamics, Monopsony, and Aggregate Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 59, January.
    3. Francesco Amodio & Emanuele Brancati & Nicolás de Roux & Michele Di Maio, 2025. "Labor Market Institutions and Wage-Setting Power: Evidence from Latin America and the Caribbean," Documentos CEDE 2025-26, Universidad de los Andes, Facultad de Economía, CEDE.
    4. Qin, Ni & Zeng, Junwei & Wang, Qiyao, 2025. "Labor mobility and corporate wage inequity: Evidence from the Hukou reform in China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1909-1926.

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • 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
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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