Working Paper: CEPR ID: DP16291
Authors: Wyatt J. Brooks; Joseph Kaboski; Illenin Kondo; Yao Amber Li; Wei Qian
Abstract: In this paper we study whether or not transportation infrastructure disrupts local monopsony power in labor markets using an expansion of the national highway system in India. Using panel data on manufacturing firms, we find that monopsony power in labor markets is reduced among firms near newly constructed highways relative to firms that remain far from highways. We estimate that the highways reduce labor markdowns significantly. We use changes in the composition of inputs to identify these effects separately from the reduction of output markups that occurs simultaneously. The impacts of highway construction are therefore pro-competitive in both output andinput markets, and act to increase the share of income that labor receives by 1.8--2.3 percentage points.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Construction of highways (R42) | Reduction in labor markdowns (J89) |
| Construction of highways (R42) | Increase in labor's share of income (E25) |
| Highway expansion (R42) | Decrease in firms' monopsony power (J42) |
| Highway expansion (R42) | Increase in competition in labor markets (J49) |
| Reduction in labor markdowns (J89) | Increase in labor's share of income (E25) |