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Monopsony in Spatial Equilibrium

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  • Matthew E. Kahn
  • Joseph Tracy

Abstract

An emerging labor economics literature studies the consequences of firms exercising market power in local labor markets. These monopsony models have implications for trends in earnings inequality. The extent of this market power is likely to vary across local labor markets. In choosing what local labor market to live and work in, workers tradeoff wages, rents and local amenities. Building on the Rosen/Roback spatial equilibrium model, we investigate how the existence of local monopsony power affects the cross-sectional spatial distribution of wages and rents across cities. We find an elasticity of land prices to employment concentration of –0.037—similar to Rinz (2018) reported elasticity of compensation. For renters, this offsets the monopsony wage effect and shifts part of the incidence of monopsony to homeowners.

Suggested Citation

  • Matthew E. Kahn & Joseph Tracy, 2019. "Monopsony in Spatial Equilibrium," NBER Working Papers 26295, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26295
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. An October Update on the 21st Century Cities Initiative at Johns Hopkins
      by Matthew E. Kahn in Environmental and Urban Economics on 2019-10-06 14:16:00
    2. Some Microeconomics of Extreme Heat Exposure in the United States
      by Matthew E. Kahn in Environmental and Urban Economics on 2021-09-20 23:12:00
    3. Incorporating Local Public Health Dynamics into The Rosen/Roback Spatial Equilibrium Model
      by Matthew E. Kahn in Environmental and Urban Economics on 2021-10-24 12:11:00

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    2. Klein, Alexander, 2023. "From the Manufacturing Belt to the Rust Belt. Spatial Inequalities in the United States: An Interdisciplinary Literature Review," CAGE Online Working Paper Series 657, Competitive Advantage in the Global Economy (CAGE).
    3. Hervé, Justine, 2023. "Specialists or generalists? Cross-industry mobility and wages," Labour Economics, Elsevier, vol. 84(C).

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    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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