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Labor Market Power

Author

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  • Berger, David

    () (Northwestern University)

  • Herkenhoff, Kyle

    () (University of Minnesota)

  • Mongey, Simon

    () (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

  • Berger, David & Herkenhoff, Kyle & Mongey, Simon, 2019. "Labor Market Power," IZA Discussion Papers 12276, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12276
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    References listed on IDEAS

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    Cited by:

    1. Priyaranjan Jha & Antonio Rodriguez-Lopez, 2019. "Monopsonistic Labor Markets and International Trade," Working Papers 192001, University of California-Irvine, Department of Economics.
    2. Kyle F. Herkenhoff & Gajendran Raveendranathan, 2019. "Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry," Working Papers 2019-071, Human Capital and Economic Opportunity Working Group.
    3. Musa Abdu & Adamu Jibir, 2019. "Sources of Market Power among Firms in Sub-Saharan Africa: Do Institutions Matter in Competitive Policies?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 24(2), pages 115-148, July-Dec.
    4. Kevin Rinz, 2019. "Did Timing Matter? Life Cycle Differences in Effects of Exposure to the Great Recession," Working Papers 19-25, Center for Economic Studies, U.S. Census Bureau.
    5. Benjamin Griffy, 2018. "Borrowing Constraints, Search, and Life-Cycle Inequality," Discussion Papers 18-01, University at Albany, SUNY, Department of Economics.
    6. Thibaut Lamadon & Magne Mogstad & Bradley Setzler, 2019. "Imperfect competition, compensating differentials and rent sharing in the U.S. labor market," Discussion Papers 918, Statistics Norway, Research Department.
    7. Saxell, Tanja & Nurminen, Mikko, 2020. "Physician Prices and Competition: Evidence from Acquisitions in the Private Health Care Sector," Working Papers 130, VATT Institute for Economic Research.
    8. Wyatt J. Brooks & Joseph P. Kaboski & Yao Amber Li & Wei Qian, 2019. "Exploitation of Labor? Classical Monopsony Power and Labor's Share," NBER Working Papers 25660, National Bureau of Economic Research, Inc.
    9. Acharya, Sushant & Wee, Shu Lin, 2020. "On-the-job Search and the Productivity-Wage Gap," CEPR Discussion Papers 14430, C.E.P.R. Discussion Papers.
    10. Bradley Setzler & Felix Tintelnot, 2019. "The Effects of Foreign Multinationals on Workers and Firms in the United States," NBER Working Papers 26149, National Bureau of Economic Research, Inc.
    11. Nicolas Abad, 2019. "Firms' Labor Market Power and Aggregate Instability," Working Papers hal-02329802, HAL.
    12. Quint Wiersma, 2019. "The impact of WTO accession on Chinese firms' product and labor market power," Tinbergen Institute Discussion Papers 19-037/V, Tinbergen Institute.

    More about this item

    Keywords

    wage setting; market structure; labor markets;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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