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Monopsony in Spatial Equilibrium

Author

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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 market to live and work in, workers trade off 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 employment-weighted elasticity of land prices to concentration of ?0.034?similar to Rinz (2018)?s reported elasticity of compensation to concentration. This finding has implications for who bears the economic incidence of labor market power. We present two extensions of the model focusing on the role of migration costs and worker skill heterogeneity.

Suggested Citation

  • Matthew E. Kahn & Joseph Tracy, 2019. "Monopsony in Spatial Equilibrium," Working Papers 1912, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:1912
    DOI: 10.24149/wp1912
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    Full references (including those not matched with items on IDEAS)

    Citations

    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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    Cited by:

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    2. 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

    Keywords

    monopsony; wages; housing costs;
    All these keywords.

    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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