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On the use of the factor share approach to measure labor market power

Author

Listed:
  • Carlos Casacuberta

    (Universidad de la Republica)

  • Nestor Gandelman

    (Universidad ORT Uruguay)

Abstract

The production approach to market power estimation requires accurate measures of output-input elasticities. This note shows that when there is employer or employee market power in labor markets, the cost share approach cannot identify the output-labor elasticity needed to estimate the labor market power indicator. A naïve application of this method biases the labor market power indicator towards perfect competition. Therefore, researchers should implement alternative estimation strategies, as the econometric estimation of the production function.

Suggested Citation

  • Carlos Casacuberta & Nestor Gandelman, 2025. "On the use of the factor share approach to measure labor market power," Economics Bulletin, AccessEcon, vol. 45(3), pages 1365-1375.
    • Handle: RePEc:ebl:ecbull:eb-25-00091
    as

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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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