Labor Market Power
David Berger, Kyle Herkenhoff, Simon Mongey
American Economic Review · 2022 · Volume 112 · Issue 4
Abstract
We develop, estimate, and test a tractable general equilibrium model of oligopsony with differentiated jobs and concentrated labor markets. We estimate key model parameters by matching new evidence on the relationship between firms' local labor market share and their employment and wage responses to state corporate tax changes. The model quantitatively replicates quasi-experimental evidence on imperfect productivity-wage pass-through and strategic wage setting of dominant employers. Relative to the efficient allocation, welfare losses from labor market power are 7.6 percent, while output is 20.9 percent lower. Lastly, declining local concentration added 4 percentage points to labor's share of income between 1977 and 2013.
Keywords
Aggregate Factor Income Distribution, State and Local Taxation, Subsidies, and Revenue, Human Capital, Skills, Occupational Choice, Labor Productivity, Wage Level and Structure, Wage Differentials, Monopsony, Segmented Labor Markets, Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics
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