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The elasticity of labor supply to the firm over the business cycle

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  • Depew, Briggs
  • Sørensen, Todd A.

Abstract

Recent empirical work has found evidence that the elasticity of labor supply to individual firms is finite, implying that firms may have wage setting power. However, these studies capture only single snapshots of the elasticity. We are the first to study how the elasticity of labor supply to the firm changes between economic contractions and economic expansions. We study two manufacturing firms operating in geographically distinct labor markets during the volatile inter-war period. Our analysis suggests that the elasticity of labor supply to the firm is lower during recessions than during expansions, providing evidence of differential wage setting power over the business cycle. This differential wage setting ability provides an explanation of the pro-cyclicality of real wages.

Suggested Citation

  • Depew, Briggs & Sørensen, Todd A., 2013. "The elasticity of labor supply to the firm over the business cycle," Labour Economics, Elsevier, vol. 24(C), pages 196-204.
  • Handle: RePEc:eee:labeco:v:24:y:2013:i:c:p:196-204
    DOI: 10.1016/j.labeco.2013.08.005
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    References listed on IDEAS

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    1. repec:iza:izawol:journl:2017:n:355 is not listed on IDEAS
    2. Briggs Depew & Peter Norlander & Todd A. Sørensen, 2017. "Inter-firm mobility and return migration patterns of skilled guest workers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(2), pages 681-721, April.
    3. Jahn, Elke & Hirsch, Boris, 2012. "Is there monopsonistic discrimination against immigrants? First evidence from linked employer employee data," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 65417, Verein für Socialpolitik / German Economic Association.
    4. Félix, Sónia & Portugal, Pedro, 2016. "Labor Market Imperfections and the Firm's Wage Setting Policy," IZA Discussion Papers 10241, Institute for the Study of Labor (IZA).
    5. Hirsch, Boris & Jahn, Elke J. & Schnabel, Claus, 2013. "The Cyclical Behaviour of Employers' Monopsony Power and Workers' Wages," IZA Discussion Papers 7776, Institute for the Study of Labor (IZA).
    6. Douglas A. Webber, 2016. "Firm-Level Monopsony and the Gender Pay Gap," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(2), pages 323-345, April.
    7. Dube, Arindrajit & Giuliano, Laura & Leonard, Jonathan, 2015. "Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior," IZA Discussion Papers 9149, Institute for the Study of Labor (IZA).

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