Working Paper: CEPR ID: DP16180
Authors: Francesco Amodio; Nicolas De Roux
Abstract: How much can employers in low and middle-income countries suppress wages below marginal productivity? Using plant and customs data from Colombia, we exploit pre-determined variation across plants in sales export destinations combined with variation in exchange rates to generate plant-specific shocks to marginal revenue productivity and labor demand. We estimate a firm-level labor supply elasticity of around 2.5, implying that workers produce about 40% more than their wage level. This result is driven by plants that account for a large share of local employment, consistent with an oligopsonistic labor market model.
Keywords: Labor Market Power; Export; Colombia
JEL Codes: J42; L10; O14; O54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| export shock (Y60) | number of workers hired (J63) |
| export shock (Y60) | average wage paid by the firm (J31) |
| number of workers hired (J63) | labor market power (J42) |
| average wage paid by the firm (J31) | labor market power (J42) |
| export shock (Y60) | marginal revenue product of labor (J49) |
| marginal revenue product of labor (J49) | wages paid (J31) |
| employment conditions (J81) | labor market power (J42) |
| local labor market conditions (J29) | number of workers hired (J63) |
| local labor market conditions (J29) | average wage paid by the firm (J31) |