Working Paper: NBER ID: w28977
Authors: Wyatt Brooks; Joseph P. Kaboski; Illenin O. 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 and input markets, and act to increase the share of income that labor receives by 1.8--2.3 percentage points.
Keywords: infrastructure investment; labor markets; monopsony power
JEL Codes: J01; J42; O18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Highway construction (R42) | Labor markdowns (J46) |
| Highway construction (R42) | Monopsony power (J42) |
| Labor markdowns (J46) | Share of income received by labor (E25) |
| Highway construction (R42) | Changes in labor compensation (J39) |
| Highway construction (R42) | Mobility of the labor force (J61) |