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Labor Market Power

Paper Session

Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PST)

Manchester Grand Hyatt, Harbor E
Hosted By: Labor and Employment Relations Association
  • Chair: Arindrajit Dube, University of Massachusetts-Amherst

Labor Market Power

David Berger
,
Northwestern University
Kyle Herkenhoff
,
University of Minnesota
Simon Mongey
,
University of Chicago

Abstract

We develop a quantitative general equilibrium oligopsony model of the U.S. labor market, calibrated to Census data. Parameters governing labor market power are identified using new measures of within-state-firm, across-market differences in the response of employment and wages to state corporate tax changes. After calibrating to match 2014 measures of labor market power, we find that the consumption equivalent welfare gains associated with a Walrasian equilibrium, in which firms do not internalize their market power, range from 2.2 to 6.4 percent. Despite these large gains, labor market power has not contributed to the falling labor share. In our model, the distribution of wage-bill Herfindahls is a sufficient statistic for the aggregate labor share. We document that the employment-weighted wagebill Herfindahl fell significantly from 1976 to 2014, increasing labor's share of income by 2.3 percentage points. Lastly, we simulate a minimum wage hike that binds for 10.4 percent of U.S. workers, and show that lower tail income inequality compresses by 1 log point.

Monopsony in the U.S. Labor Market

Brad Hershbein
,
W.E. Upjohn Institute for Employment Research
Claudia Macaluso
,
Federal Reserve Bank of Richmond
Chen Yeh
,
Federal Reserve Bank of Richmond

Abstract

This paper quantifies whether the U.S. labor market is characterized by employer market power and whether the degree of employer market power has increased over time. We find that the vast majority of U.S. manufacturing plants operate in a monopsonistic environment and, at least since the early 2000s, the labor market in U.S. manufacturing has become more monopsonistic. To reach this conclusion, we exploit rich administrative data for U.S. manufacturers and estimate plant-level markdowns — the ratio between a plant's marginal revenue product of labor and its wage. In a competitive labor market, markdowns would be equal to unity. Instead, we find substantial deviations from perfect competition, as markdowns average at 1.53. This result implies that a worker employed at the average manufacturing plant earns 65 cents on each dollar generated on the margin. Furthermore, we document a substantial amount of dispersion in markdowns across plants, even within detailed industries. To investigate long-term trends in employer market power, we propose a novel measure for the aggregate markdown that is consistent with aggregate wedges and also incorporates the local nature of labor markets. We find that the aggregate markdown decreased from the late 1970s up to the early 2000s, but has been sharply increasing afterward. When we compare often-used indexes of employment concentration with our markdown estimates, we find a dissimilar evolution over time. This weak relationship cautions against interpreting employment concentration as a proxy for employer market power.

Labor-Market Concentration and Labor Compensation

Aaron Sojourner
,
University of Minnesota
Yue Qiu
,
Temple University

Abstract

This paper estimates the effect of labor-market concentration on labor compensation across the U.S. private sector since 2000. We distinguish between concentration in local labor markets versus local product markets, guarding against bias from confounded product-market concentration. Analysis extends beyond wages to rates of employment-based health insurance coverage. Estimates suggest negative effects of labor-market concentration on labor compensation. This comes through both reducing the human-capital level of those in the market and reducing pay conditional on human-capital level. Higher product-market concentration exacerbates and higher unionization rates mitigates these effects.

Variation in the impact of Explicit Oligopsony by Occupation

Matthew Dey
,
U.S. Bureau of Labor Statistics
Elizabeth Weber Handwerker
,
U.S. Bureau of Labor Statistics

Abstract

There has been an explosion of interest in the role of very large employers and in employers with monopsony power in local labor markets. We use the detailed microdata of the Occupational Employment Statistics (OES) to estimate employer labor market power by occupation for nearly all workers in the United States, in all sectors, all occupations, and all geographic areas, from 2005 to 2017. We document wide variation in the extent and wage impact of explicit oligopsony by occupation. We further document how much of this variation can be explained by various occupational characteristics.
Discussant(s)
Marshall Steinbaum
,
University of Chicago
Ioana Elena Marinescu
,
University of Pennsylvania
JEL Classifications
  • J4 - Particular Labor Markets