Estimating labour market power: the long and short of it

This paper combines two empirical traditions in the study of employer monopsony power. One tradition estimates static firm labour supply elasticities, while the other focuses on labour market flows, estimating separations and hires elasticities. We nest these two approaches in a simple dynamic model for firm-level labour supply in which the short- and long-run labour supply elasticities are different. Using matched employer-employee data from the UK, we estimate a short-run labour supply elasticity of 1-2 and a longrun elasticity of 5-6. Estimating a static labour supply curve estimates a weighted combination of the short- and long-run elasticities. Separations and hiring elasticities estimated on the same data are consistent with the long-run elasticity but are not informative about the short-run.