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Labor Market Power in Developing Countries: Evidence from Colombian Plants

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  • Amodio, Francesco
  • de Roux, Nicolás

Abstract

How much can employers in low and middle-income countries suppress wages below marginal productivity? Using plant and customs data from Colombia, we exploit pre-determined variation across plants in sales export destinations combined with variation in exchange rates to generate plant-specific shocks to marginal revenue productivity and labor demand. We estimate a firm-level labor supply elasticity of around 2.5, implying that workers produce about 40% more than their wage level. This result is driven by plants that account for a large share of local employment, consistent with an oligopsonistic labor market model.

Suggested Citation

  • Amodio, Francesco & de Roux, Nicolás, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," CEPR Discussion Papers 16180, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16180
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    2. Hernández, Carlos Eduardo & Cantillo-Cleves, Santiago, 2024. "A toolkit for setting and evaluating price floors," Journal of Public Economics, Elsevier, vol. 232(C).
    3. Andrés Álvarez & Juan Camilo Chaparro & Carolina Gonz�lez & Santiago Levy & Dar�o Maldonado & Marcela Mel�ndez & Natalia Ram�rez & Marta Juanita Villaveces, 2022. "Reporte ejecutivo de la Misión de Empleo de Colombia," Documentos de trabajo 20156, Escuela de Gobierno - Universidad de los Andes.
    4. Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).
    5. Chau, Nancy H. & Kanbur, Ravi & Soundararajan, Vidhya, "undated". "Employer Power and Employment in Developing Countries," Applied Economics and Policy Working Paper Series 324053, Cornell University, Department of Applied Economics and Management.
    6. Hoang, Trang & Mitra, Devashish & Pham, Hoang, 2024. "The Effect of Export Market Access on Labor Market Power: Firm-Level Evidence from Vietnam," IZA Discussion Papers 17196, IZA Network @ LISER.
    7. Francesco Amodio & Pamela Medina & Monica Morlacco, 2025. "Labor Market Power, Self-Employment, and Development," American Economic Review, American Economic Association, vol. 115(9), pages 3014-3057, September.
    8. Trang T. Hoang & Devashish Mitra & Hoang Pham, 2024. "The Effect of Export Market Access on Labor Market Power: Firm-level Evidence from Vietnam," International Finance Discussion Papers 1394, Board of Governors of the Federal Reserve System (U.S.).
    9. Abbate, Nicolás & Jiménez, Bruno, 2026. "Do minimum wage hikes lead to employment destruction? Evidence from a regression discontinuity design in Argentina," Journal of Development Economics, Elsevier, vol. 178(C).
    10. Boudreau, Laura & Cajal-Grossi, Julia & Macchiavello, Rocco, 2023. "Global value chains in developing countries: a relational perspective from coffee and garments," LSE Research Online Documents on Economics 120184, London School of Economics and Political Science, LSE Library.
    11. Yasin Kür¸sat Önder & Mauricio Villamizar-Villegas & Jose Villegas, 2023. "Debt Moratorium: Theory and Evidence," Borradores de Economia 1253, Banco de la Republica de Colombia.
    12. Jiménez, Bruno, 2023. "The Political economy of the minimum wage," Labour Economics, Elsevier, vol. 85(C).
    13. Laura Boudreau, 2024. "Multinational Enforcement of Labor Law: Experimental Evidence on Strengthening Occupational Safety and Health Committees," Econometrica, Econometric Society, vol. 92(4), pages 1269-1308, July.

    More about this item

    Keywords

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    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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