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Firm market power and the earnings distribution

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  • Webber, Douglas A.

Abstract

Using the Longitudinal Employer Household Dynamics (LEHD) data from the United States Census Bureau, I compute firm-level measures of labor market (monopsony) power. To generate these measures, I extend the empirical strategy of Manning (2003) and estimate the labor supply elasticity facing each private non-farm firm in the U.S. While a link between monopsony power and earnings has traditionally been assumed, I provide the first direct evidence of the positive relationship between a firm's labor supply elasticity and the earnings of its workers. I also contrast the dynamic model strategy with the more traditional use of concentration ratios to measure a firm's labor market power. In addition, I provide several alternative measures of labor market power which account for potential threats to identification such as endogenous mobility. Finally, I construct a counterfactual earnings distribution which allows the effects of firm market power to vary across the earnings distribution.

Suggested Citation

  • Webber, Douglas A., 2015. "Firm market power and the earnings distribution," Labour Economics, Elsevier, vol. 35(C), pages 123-134.
  • Handle: RePEc:eee:labeco:v:35:y:2015:i:c:p:123-134
    DOI: 10.1016/j.labeco.2015.05.003
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    More about this item

    Keywords

    Monopsony; Worker mobility; Earnings inequality;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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