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.

More on this topic

BFI Working Paper·Apr 23, 2025

Evaluating Recent Crackdowns on Disability Benefits: Effects on Income and Health Care Use in Australia

Manasi Deshpande, Greg Kaplan, and Tobias Leigh-Wood
Topics: Employment & Wages, Health care
BFI Working Paper·Mar 19, 2025

The Impact of Employment on Partnerships: Evidence from a Refugee Settlement

Yueh-ya Hsu, Reshmaan Hussam, Erin M. Kelley, and Gregory Lane
Topics: Employment & Wages
BFI Working Paper·Mar 10, 2025

The Rise of Healthcare Jobs

Joshua Gottlieb, Neale Mahoney, Kevin Rinz, and Victoria Udalova
Topics: Employment & Wages, Health care