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Firm Dynamics, Monopsony, and Aggregate Productivity Differences

Author

Listed:
  • Tristany Armangue-Jubert

    (Universitat Autonoma de Barcelona)

  • Tancredi Rapone

    (Universitat Autonoma de Barcelona)

  • Alessandro Ruggieri

    (CUNEF Universidad)

Abstract

This paper studies how labor market power affects firm dynamics and aggregate productivity. We build a dynamic model of neoclassical monopsony with occupational choice, firm growth, and productivity-enhancing technology adoption. Labor market power lowers efficiency and leads to aggregate output losses by distorting the allocation of labor, entrepreneurship, and innovation decisions. The model is consistent with cross-country evidence of higher life cycle firm growth and higher productivity investment in more competitive labor markets and can explain 25 percent of the differences in aggregate productivity across countries. We find that about 85 percent of the losses are attributable to the lack of technology adoption induced by weaker labor market competition, suggesting that efficiency losses may be greater than those estimated by previous studies. (Copyright: Elsevier)

Suggested Citation

  • 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.
    • Handle: RePEc:red:issued:25-59
    DOI: 10.1016/j.red.2025.101231
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • 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

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