Oligopsonies over the Business Cycle

34 Pages Posted: 4 Mar 2020

See all articles by Daniel Monte

Daniel Monte

Sao Paulo School of Economics - FGV

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: February 27, 2020

Abstract

With a duopsony model, we show how the degree of labor market slack relates to earnings inequality and firm size distribution across local labor markets and the business cycle. In booms, due to the high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving in or out of a recession, there is an “accommodation” phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We show that the impact of economic shocks on wage dispersion and inequality may vary not only due to the nature of the shock, but also based on which equilibrium the economy may have settled in.

Keywords: Duopsony, Labor Market Slack, Wage Inequality

JEL Classification: J21, J23, J42, L13

Suggested Citation

Monte, Daniel and Pinheiro, Roberto, Oligopsonies over the Business Cycle (February 27, 2020). FRB of Cleveland Working Paper No. 20-06. Available at SSRN: https://ssrn.com/abstract=3547614 or http://dx.doi.org/10.2139/ssrn.3547614

Daniel Monte

Sao Paulo School of Economics - FGV ( email )

Rua Itapeva, 474
12° andar, Bela Vista
Sao Paulo, Sao Paulo 01332-000
Brazil
55 11 3799-3727 (Phone)

Roberto Pinheiro (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
5
Abstract Views
106
PlumX Metrics