Research / BFI Working PaperMay 11, 2021

Labor Market Power

David Berger, Kyle Herkenhoff, Simon Mongey

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 Research From These Scholars

BFI Working Paper Apr 26, 2020

Which Workers Bear the Burden of Social Distancing Policies?

Simon Mongey, Laura Pilossoph, Alex Weinberg
Topics:  COVID-19, Employment & Wages
BFI Working Paper Mar 24, 2020

An SEIR Infectious Disease Model with Testing and Conditional Quarantine

David Berger, Kyle Herkenhoff, Simon Mongey
Topics:  COVID-19
BFI Working Paper Jan 20, 2022

Minimum Wages, Efficiency and Welfare

David W. Berger, Kyle F. Herkenhoff, Simon Mongey
Topics:  Economic Mobility & Poverty