Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Labor Market Power: From Micro Evidence to Macro Consequences
Journal of Economic Perspectives
(pp. 93–114)
(Complimentary)
Abstract
The traditional theoretical and empirical "micro approach" to studying labor market power (or monopsony) requires that firms are small and atomistic. This is at odds with the reality of labor markets in which monopsony potentially matters most. Empirically, many markets are concentrated and characterized by large, dominant employers. The actions of large employers in an occupation or industry affect local and national wages, employment and output. Employers that understand their largeness may then act strategically when hiring and setting wages, generating misallocation and harming workers. This paper advocates for a "macro approach": (1) directly model equilibrium behavior of large employers, (2) combine macro data and empirical estimates of employers' responses to policy changes—obtained using the "micro approach"—to estimate the model, (3) use the model to compute the aggregate costs of monopsony, and optimal policies. This approach provides new perspectives on minimum wage and antitrust policy.Citation
Berger, David, Kyle Herkenhoff, and Simon Mongey. 2026. "Labor Market Power: From Micro Evidence to Macro Consequences." Journal of Economic Perspectives 40 (1): 93–114. DOI: 10.1257/jep.20251456Additional Materials
JEL Classification
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- J20 Demand and Supply of Labor: General
- J38 Wages, Compensation, and Labor Costs: Public Policy
- J42 Monopsony; Segmented Labor Markets
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- K21 Antitrust Law