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Labor Market Power


  • David Berger

    (Northwestern University)

  • Kyle Herkenhoff

    (University of Minnesota)

  • Simon Mongey

    (Federal Reserve Bank of Minneapolis)


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{}} 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

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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

    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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