Estimating Labor Market Power

58 Pages Posted: 30 Sep 2019 Last revised: 26 Jul 2022

See all articles by José Azar

José Azar

University of Navarra, IESE Business School; CEPR; ECGI

Steven Berry

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Ioana Elena Marinescu

University of Pennsylvania - School of Social Policy & Practice; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 18, 2019

Abstract

Job differentiation gives employers market power, allowing them to pay workers less than their marginal productivity. We estimate a differentiated jobs model using application data from Careerbuilder.com. We find direct evidence of substantial job differentiation. Without the use of instruments for wages, job applications appear very inelastic with respect to wages. Plausible instruments produce elastic firm level application supply curves. Under some assumptions, the implied market level labor supply elasticity is 0.5, while the firm level labor elasticity is 4.8. This suggests that workers may produce 21% more than their wage level, consistent with significant monopsony power.

Keywords: labor supply, monopsony, nested logit

JEL Classification: J22, J31, J42, L13

Suggested Citation

Azar, José and Berry, Steven T. and Marinescu, Ioana Elena, Estimating Labor Market Power (September 18, 2019). Available at SSRN: https://ssrn.com/abstract=3456277 or http://dx.doi.org/10.2139/ssrn.3456277

José Azar

University of Navarra, IESE Business School ( email )

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Steven T. Berry

Yale University - Department of Economics ( email )

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Ioana Elena Marinescu (Contact Author)

University of Pennsylvania - School of Social Policy & Practice ( email )

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National Bureau of Economic Research (NBER) ( email )

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