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Employment Adjustment over the Business Cycle: The Impact of Competition in the Labor Market

Author

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  • Webber, Douglas A.

    (Federal Reserve Board of Governors)

Abstract
Using linked employer-employee data which covers the majority of U.S. employment, I examine how frictions in the labor market have evolved over time. I estimate that the labor supply elasticity to the firm declined by approximately 0.19 log points (1.20 to 1.01) since the late 1990's, with the steepest declines occurring during the financial crisis. I find that this decline in labor market competition cost workers about 4 percent in lost earnings. I also find evidence that relatively monopsonistic firms smooth their employment behavior, growing at a rate lower than relatively competitive firms in good economic climates and slightly higher during poor economic climates. This conforms with the predictions of recent macroeconomic search models which suggest that frictions in the economy may actually reduce employment fluctuations.

Suggested Citation

  • Webber, Douglas A., 2018. "Employment Adjustment over the Business Cycle: The Impact of Competition in the Labor Market," IZA Discussion Papers 11887, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11887
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    Cited by:

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    2. Ronald Bachmann & Gökay Demir & Hanna Frings, 2022. "Labor Market Polarization, Job Tasks, and Monopsony Power," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 11-49.
    3. Anna Sokolova & Todd Sorensen, 2021. "Monopsony in Labor Markets: A Meta-Analysis," ILR Review, Cornell University, ILR School, vol. 74(1), pages 27-55, January.
    4. Tyler Ransom, 2022. "Labor Market Frictions and Moving Costs of the Employed and Unemployed," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 137-166.

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    More about this item

    Keywords

    monopsony; Great Recession; adjustment costs;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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