Working Paper: NBER ID: w25719
Authors: David W. Berger; Kyle F. Herkenhoff; Simon Mongey
Abstract: To measure labor market power in the US economy, we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market. We estimate key model parameters by matching the firm-level relationship between labor market share and employment size and wage responses to state corporate tax changes. The model quantitatively replicates quasi-experimental evidence on (i) imperfect productivity-wage pass-through, (ii) strategic behavior of dominant employers, and (iii) the local labor market impact of mergers. We then measure welfare losses relative to the efficient allocation. Accounting for transition dynamics, we quantify welfare losses from labor market power relative to the efficient allocation as roughly 6 percent of lifetime consumption. An analytical decomposition attributes equal parts to dead-weight losses and misallocation. Lastly, we find that declining local concentration added 4 ppt to labor’s share of income between 1977 and 2013.
Keywords: Labor Market Power; Oligopsony; Welfare Losses
JEL Codes: E2; J2; J4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor market power (J42) | welfare losses (D69) |
| markdowns on wages (J39) | structural labor supply elasticity (J20) |
| declining local concentration (R11) | increase in labor's share of income (E25) |
| labor market concentration (J42) | wage dynamics (J31) |
| wage dynamics (J31) | welfare outcomes (I38) |