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Identifying Labor Market Power: A Quasi-Experimental Approach

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  • Galindo da Fonseca, JoaÞo
  • Santarrosa, Rogerio

Abstract

We test whether firms react to changes in the wages and size of their competitors. We use a unique institutional feature of public procurement auctions in Brazil: the moment in which the auction ends is random. For close auctions, winner and runner-up are as good as randomly assigned. We first show that firm-specific demand shocks lead to increases in the size and wages of the firm receiving the shock. Then, we document that these firm-specific demand shocks lead to increased wages of other (competing) firms in the same local labor market. We do not find negative effects on competitors' firm size. The effects are driven by competing firms responding to demand shocks from firms with high labor market share.

Suggested Citation

  • Galindo da Fonseca, JoaÞo & Santarrosa, Rogerio, 2025. "Identifying Labor Market Power: A Quasi-Experimental Approach," IDB Publications (Working Papers) 14084, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:14084
    DOI: http://dx.doi.org/10.18235/0013485
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    More about this item

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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