Labor Market Powe

David Berger, Kyle Herkenhoff, Simon Mongey

Research output: Contribution to journalArticlepeer-review

48 Scopus citations


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. (JEL E25, H71, J24, J31, J42, R23)

Original languageEnglish (US)
Pages (from-to)1147-1193
Number of pages47
JournalAmerican Economic Review
Issue number4
StatePublished - Apr 2022

Bibliographical note

Funding Information:
* Berger: Duke University (email: [email protected]); Herkenhoff: Federal Reserve Bank of Minneapolis and University of Minnesota (email: [email protected]); Mongey: Federal Reserve Bank of Minneapolis and University of Chicago (email: [email protected]). Emi Nakamura was the coeditor for this article. This research was supported by the National Science Foundation (award SES-1824422). We thank Costas Arkolakis, Chris Edmond, Oleg Itskohki, Matt Notowidigdo, Richard Rogerson, Jim Schmitz, Chris Tonetti, and Arindrajit Dube for helpful comments. We thank Chengdai Huang for excellent research assistance. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the US Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. The views expressed in this study are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

Publisher Copyright:
© 2022 American Economic Association. All rights reserved.


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