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Labor Market Power


  • David Berger

    (Northwestern University)

  • Kyle Herkenhoff

    (University of Minnesota)

  • Simon Mongey

    (University of Chicago)


We develop a general equilibrium oligopsony model of the US labor market. To parameterize the model we use Census data to estimate within-state-firm, across-region differences in the response of employment and wages to state corporate tax changes. We show that the distribution of wage-bill Herfindahls is a sufficient statistic for the aggregate labor share, and we document that the employment-weighted wage-bill Herfindahl fell from 1976 to 2014. After estimating our model to match 2014 levels of labor market concentration, we find that the welfare gains associated with a Walrasian equilibrium range from 4 to 18 percent. Lastly, we show that the model is able to capture the reallocation of employment across the distribution of firms in response to a minimum wage hike.

Suggested Citation

  • David Berger & Kyle Herkenhoff & Simon Mongey, 2019. "Labor Market Power," 2019 Meeting Papers 1231, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:1231

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    References listed on IDEAS

    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.
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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. Benjamin Griffy, 2018. "Borrowing Constraints, Search, and Life-Cycle Inequality," Discussion Papers 18-01, University at Albany, SUNY, Department of Economics.
    5. 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.
    6. 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.
    7. 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.
    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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