Labor Market Power

Abstract

To measure labor market power in the US economy, we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market. We estimate key model parameters by matching the firm-level relationship between labor market share and employment size and wage responses to state corporate tax changes. The model quantitatively replicates quasi-experimental evidence on (i) imperfect productivity-wage pass-through, (ii) strategic behavior of dominant employers, and (iii) the local labor market impact of mergers. We then measure welfare losses relative to the efficient allocation. Accounting for transition dynamics, we quantify welfare losses from labor market power relative to the efficient allocation as roughly 6 percent of lifetime consumption. An analytical decomposition attributes equal parts to dead-weight losses and misallocation. Lastly, we find that declining local concentration added 4 ppt to labor's share of income between 1977 and 2013.

Minimum Wages, Efficiency and Welfare

“…To quantify these forces we calibrate our model to the U.S. economy. The calibrated model reproduces the empirical distribution of markets in terms of the number of firms in each market, average firm employment and payroll, relative wages across worker types, distribution of consumption and nonwage income across worker types, average market concentration, labor and capital share, and the observed relationship between labor market share and wage and employment responses to shocks (Berger, Herkenhoff, and Mongey, 2021). We then quantitatively replicate the above studies, which discipline the channels through which minimum wages may improve efficiency.…”

“…10 In Berger, Herkenhoff, and Mongey (2021) we show how the labor supply curves that obtain under these preferences can also be obtained by individuals making discrete labor supply decisions (i) across an employment / non-employment margin, (ii) across markets, (iii) across firms within markets. If preferences across these three are drawn from a correlated Gumbel distribution, then the parameter ϕ maps into overall variance of draws, θ into the conditional variance across markets, and η into the conditional variance within markets.…”

“…. 9 Labor supply disutility is defined by a nested CES expression as in Berger, Herkenhoff, and Mongey (2021) and depends on the allocation of labor across and within labor markets, while consumption goods are perfect substitutes:…”

Market concentration and the relative demand for college‐educated labour

“…It is not unlikely that more elastic labour supply, or a less competitive labour market, however, could generate more complex within-firm effects. One could potentially include monopsonistic employers and differentiated jobs, as in Berger et al (2021), or endogenous markups such as in Atkeson and Burstein (2008), but I leave the analysis of such aspects to future research. Empirically, the evidence, as will be clear later in the paper, supports the notion of a more competitive framework: I find that the within-firm component is rather negligible in how a rise in concentration affects relative skill demand.…”

Business Cycles With Cyclical Returns to Scale

“…Once researchers allow frictions, such as input adjustment costs (Hall 2004), imperfect competition in output (Rotemberg and Woodford 1999) and input (Berger et al. 2019) markets, and financial frictions (Jermann and Quadrini 2012; Arellano et al. 2019; Bigio and La'O 2020), a wedge arises between the marginal product of input and the real input price.…”