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Labor Market Power

Author

Listed:
  • Berger, David

    (Duke University)

  • Herkenhoff, Kyle

    (University of Minnesota)

  • Mongey, Simon

    (Federal Reserve Bank of Minneapolis)

Abstract
What are the welfare implications of labor market power? We provide an answer to this question in two steps: (1) we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market, (2) we estimate key parameters using within-firm-state, across-market differences in wage and employment responses to state corporate tax changes in U.S. Census data. We validate the model against recent evidence on productivity-wage pass-through, and new measurements of the distribution of local market concentration. The model implies welfare losses from labor market power that range from 2.9 to 8.0 percent of lifetime consumption. However, despite large contemporaneous losses, labor market power has not contributed to the declining labor share. Finally, we show that minimum wages can deliver moderate, and limited, welfare gains by reallocating workers from smaller to larger, more productive firms.

Suggested Citation

  • Berger, David & Herkenhoff, Kyle & Mongey, Simon, 2019. "Labor Market Power," IZA Discussion Papers 12276, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12276
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    More about this item

    Keywords

    wage setting; market structure; labor markets;
    All these keywords.

    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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