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Labor Market Power

Author

Listed:
  • David Berger

    (Northwestern University)

  • Kyle Herkenhoff

    (University of Minnesota)

  • Simon Mongey

    (University of Chicago)

Abstract

What are the welfare implications of labor market power? We provide an answer to this question in two steps: (1) we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market, (2) we estimate key parameters using within-firm-state, across-market differences in wage and employment responses to state corporate tax changes in U.S. Census data. We validate the model against recent evidence on productivity-wage pass-through, and new measurements of the distribution of local market concentration. The model implies welfare losses from labor market power that range from 2.9 to 8.0 percent of lifetime consumption. However, despite large contemporaneous losses, labor market power has not contributed to the declining labor share. Finally, we show that minimum wages can deliver moderate, and limited, welfare gains by reallocating workers from smaller to larger, more productive firms.

Suggested Citation

  • David Berger & Kyle Herkenhoff & Simon Mongey, 2019. "Labor Market Power," Working Papers 2019-027, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2019-027
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    More about this item

    Keywords

    wage setting; market structure; labor markets;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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