Working Paper: NBER ID: w13975
Authors: Sabien Dobbelaere; Jacques Mairesse
Abstract: Consistent with two models of imperfect competition in the labor market, the efficient bargaining model and the monopsony model, we provide two extensions of a microeconomic version of Hall's framework for estimating price-cost margins. We show that both product and labor market imperfections generate a wedge between factor elasticities in the production function and their corresponding shares in revenue, that can be characterized by a "joint market imperfections parameter". Using an unbalanced panel of 10646 French firms in 38 manufacturing industries over the period 1978-2001, we can classify these industries into six different regimes depending on the type of competition in the product and the labor market. By far the most predominant regime is one of imperfect competition in the product market and efficient bargaining in the labor market (IC-EB), followed by a regime of imperfect competition in the product market and perfect competition or right-to-manage bargaining in the labor market (IC-PR), and by a regime of perfect competition in the product market and monopsony in the labor market (PC- MO). For each of these three predominant regimes, we assess within-regime firm differences in the estimated average price-cost mark-up and rent-sharing or labor supply elasticity parameters, following the Swamy methodology to determine the degree of true firm dispersion. As a way to assess the plausibility of our findings in the case of the dominant regime (IC-EB), we also relate our industry and firm-level estimates of price-cost mark-up and relative extent of rent sharing to industry characteristics and firm-specific variables respectively.
Keywords: Production Function; Market Imperfections; Labor Market; Price-Cost Margins
JEL Codes: C23; D21; J51; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market imperfections (D43) | Wedge between factor elasticities and revenue shares (D33) |
| Wedge between factor elasticities and revenue shares (D33) | Joint market imperfections parameter (D43) |
| Dominant regime (iceb) (F55) | Imperfect competition in product market (L13) |
| Dominant regime (iceb) (F55) | Efficient bargaining in labor market (J41) |
| Firm differences in estimated price-cost markups (L11) | Heterogeneity in firm-level responses to market conditions (D21) |
| Firm differences in rent-sharing parameters (D33) | Heterogeneity in firm-level responses to market conditions (D21) |