Exploitation of Labor? Classical Monopsony Power and Labor's Share

44 Pages Posted: 19 Mar 2019

See all articles by Wyatt Brooks

Wyatt Brooks

University of Notre Dame

Joseph P. Kaboski

Ohio State University (OSU) - Economics; National Bureau of Economic Research (NBER); University of Notre Dame - Department of Economics

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies)

Wei Qian

University of Notre Dame

Date Written: March 2019

Abstract

How important is the exercise of classical monopsony power against labor for the level of wages and labor's share? We examine this in the context of China and India – two large, rapidly-growing developing economies. Using theory, we develop a novel screen to quantify how wages are affected by market power exerted in labor markets, either by a single firm or a group of cooperating firms. The theory guides the measurement of labor “markdowns”, i.e., the gap between wage and the value of the marginal product of labor, and the screen examines how they comove with local labor market share and the share of cooperating firms. Applying this test, we find that markdowns substantially lower the labor share: by up to 10 percentage points in China and 15 percentage points in India. This impact has fallen over time in both countries as firm concentration in these labor markets has decreased.

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Suggested Citation

Brooks, Wyatt and Kaboski, Joseph P. and Li, Yao Amber and Qian, Wei, Exploitation of Labor? Classical Monopsony Power and Labor's Share (March 2019). NBER Working Paper No. w25660. Available at SSRN: https://ssrn.com/abstract=3354314

Wyatt Brooks (Contact Author)

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Joseph P. Kaboski

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies) ( email )

Department of Economics, Hong Kong U of Sci&Tech
Clear Water Bay, Kowloon, Hong Kong SAR, China
Kowloon
Hong Kong

HOME PAGE: http://yaoli.people.ust.hk/

Wei Qian

University of Notre Dame ( email )

Notre Dame, IN 46556
United States

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