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Labor Market Power and Development

Author

Listed:
  • Armangué-Jubert, Tristany

    (Barcelona Graduate School of Economics)

  • Guner, Nezih

    (CEMFI)

  • Ruggieri, Alessandro

    (CUNEF, Madrid)

Abstract

Imperfect competition in labor markets can lead to efficiency losses and lower aggregate output. In this paper, we study whether differences in competitiveness of labor markets can help explain differences in GDP per capita across countries. We structurally estimate a model of oligopsony with free entry for countries at different stages of development and show that the labor supply elasticity, which determines the extent of firms' labor market power, is increasing with GDP per capita. Wage mark-downs range from 55 percent among low-income countries to around 23 percent among the richest. Output per capita in poorer countries would increase by up to 69 percent if their labor markets were as competitive as in countries at the top of the development ladder.

Suggested Citation

  • Armangué-Jubert, Tristany & Guner, Nezih & Ruggieri, Alessandro, 2023. "Labor Market Power and Development," IZA Discussion Papers 16529, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp16529
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    References listed on IDEAS

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    1. Markus Poschke, 2018. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 1-41, July.
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    2. Tristany Armangue-Jubert & Tancredi Rapone & Alessandro Ruggieri, 2026. "Firm Dynamics, Monopsony, and Aggregate Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 59, January.
    3. Ihsaan Bassier & Joshua Budlender, 2025. "When do employers share? Rent sharing, monopsony and minimum wages," CEP Discussion Papers dp2134, Centre for Economic Performance, LSE.
    4. Qin, Ni & Zeng, Junwei & Wang, Qiyao, 2025. "Labor mobility and corporate wage inequity: Evidence from the Hukou reform in China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1909-1926.
    5. Amodio, Francesco & Brancati, Emanuele & de Roux, Nicolás & Di Maio, Michele, 2025. "Labor Market Institutions and Wage-Setting Power: Evidence from Latin America and the Caribbean," CEPR Discussion Papers 20539, Centre for Economic Policy Research.

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    More about this item

    Keywords

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    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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