IDEAS home Printed from https://ideas.repec.org/p/red/sed018/170.html
   My bibliography  Save this paper

Labor Market Power

Author

Listed:
  • David Berger

    (Northwestern University)

  • Kyle Herkenhoff

    (University of Minnesota)

  • Simon Mongey

    (Federal Reserve Bank of Minneapolis)

Abstract

As U.S. Senator Corey A. Booker wrote in an open letter to the acting Attorney General and Acting Chairman of the FTC, ``A growing body of evidence suggests that the rise of concentration across U.S. industries has helped create a labor market in which fewer workers are able to fairly bargain with their employers to set their wages on competitive terms.''\footnote{See the article and link to Senator Booker's letter here: \citet{booker2017market}, \url{https://www.vox.com/policy-and-politics/2017/11/1/16571992/booker-antitrust-letter}} Similarly, \citet{furman2016beyond} calls for additional research on the affects of labor market concentration on wages and job flows. \textbf{Objective:} The aim of our project is to measure the impact of labor market power amongst employers on employment, wages, investment, and labor market flows. \textbf{Contribution:} Recent studies have focused almost exclusively on the role of product market power as measured by national sales concentration (e.g. \citet{gutierrez2016investment}, \citet{autor2017fall} and \citet{de2017rise}). Studies that have thought about input market power---a more local phenomenon when inputs are non-traded, such as labor---have focused on relatively narrow industries (for a summary of the recent theory see \citet{manning2003monopsony} and for a summary of recent empirics see Section 4.2 in \citet{alan2011imperfect}). Our contribution is to develop an identification strategy which isolates the affects of labor market power (e.g. \textit{monopsony} and \textit{oligopsony}) on employment, wages, investment, and labor market flows for a broad range of industries. We measure the impact of labor market power on wages using a novel identification strategy. The insight is to isolate firms that are in tradable sectors (e.g. textiles, manufacturing etc.) and then use within-firm variation in market power across regions after a merger. For measurement and identification of mergers, wages, and job flows, we plan to use the LEHD and LBD Census micro-data (we currently have active RDC projects with access to both datasets). By focusing on tradable sectors, we remove the role of product market power. Prices are set outside of the local labor market, and so a merger will not alter prices or product market power. However, the merger will change the number of employers who are hiring within a given region, thus altering labor market power. This allows us to pinpoint the impact of monopsony and oligopsony on the real economy. We develop a model of oligopsony in the labor market, adapting the \citet{atkeson2008pricing} model of imperfect product market competition to a general equilibrium labor market. We model a finite number of firms that hire within a given industry in a given region. The model yields several testable implications: \begin{enumerate} \item The wage bill and employment decline as labor markets become more concentrated. \item Pass-through to wages from idiosyncratic shocks to the firm decrease as labor markets become more concentrated. \end{enumerate}

Suggested Citation

  • David Berger & Kyle Herkenhoff & Simon Mongey, 2018. "Labor Market Power," 2018 Meeting Papers 170, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:170
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2018/paper_170.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    2. Esteban Rossi-Hansberg & Pierre-Daniel Sarte & Nicholas Trachter, 2020. "Diverging Trends in National and Local Concentration," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, National Bureau of Economic Research, Inc.
    3. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
    4. Patrick Kline & Neviana Petkova & Heidi Williams & Owen Zidar, 2019. "Who Profits from Patents? Rent-Sharing at Innovative Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 134(3), pages 1343-1404.
    5. Juan Carlos Suárez Serrato & Owen Zidar, 2016. "Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 106(9), pages 2582-2624, September.
    6. Douglas O. Staiger & Joanne Spetz & Ciaran S. Phibbs, 2010. "Is There Monopsony in the Labor Market? Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, vol. 28(2), pages 211-236, April.
    7. José Azar & Ioana Marinescu & Marshall I. Steinbaum, 2017. "Labor Market Concentration," NBER Working Papers 24147, National Bureau of Economic Research, Inc.
    8. Autor, David & Dorn, David & Katz, Lawrence F. & Patterson, Christina & Van Reenen, John, 2017. "The fall of the Labor share and the rise of superstar firms," LSE Research Online Documents on Economics 83616, London School of Economics and Political Science, LSE Library.
    9. Thierry Lallemand & Robert Plasman & François Rycx, 2007. "The establishment-size wage premium: evidence from European countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(5), pages 427-451, December.
    10. 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.
    11. José A. Azar & Ioana Marinescu & Marshall I. Steinbaum & Bledi Taska, 2018. "Concentration in US Labor Markets: Evidence From Online Vacancy Data," NBER Working Papers 24395, National Bureau of Economic Research, Inc.
    12. Charles Whalen & Felix Reichling, 2017. "Estimates of the Frisch Elasticity of Labor Supply: A Review," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(1), pages 37-42, January.
    13. Efraim Benmelech & Nittai Bergman & Hyunseob Kim, 2018. "Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?," NBER Working Papers 24307, National Bureau of Economic Research, Inc.
    14. Jarosch, Gregor & Nimczik, Jan Sebastian & Sorkin, Isaac, 2019. "Granular Search, Market Structure, and Wages," IZA Discussion Papers 12574, Institute of Labor Economics (IZA).
    15. Stefano Banfi & Benjamín Villena-Roldán, 2019. "Do High-Wage Jobs Attract More Applicants? Directed Search Evidence from the Online Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 37(3), pages 715-746.
    16. Arindrajit Dube & Jeff Jacobs & Suresh Naidu & Siddharth Suri, 2018. "Monopsony in Online Labor Markets," NBER Working Papers 24416, National Bureau of Economic Research, Inc.
    17. Verboven, Frank, 1996. "The nested logit model and representative consumer theory," Economics Letters, Elsevier, vol. 50(1), pages 57-63, January.
    18. Felix Reichling & Charles Whalen, 2012. "Review of Estimates of the Frisch Elasticity of Labor Supply: Working Paper 2012-13," Working Papers 43676, Congressional Budget Office.
    19. Benjamin Friedrich & Costas Meghir & Lisa Laun & Luigi Pistaferri, 2018. "Earnings Dynamics and Firm-Level Shocks," 2018 Meeting Papers 536, Society for Economic Dynamics.
    20. Kevin Rinz, 2018. "Labor Market Concentration, Earnings Inequality, and Earnings Mobility," CARRA Working Papers 2018-10, Center for Economic Studies, U.S. Census Bureau.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed018:170. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.