Seminar 237/281: Macro/International Seminar - "Labor Market Power"

Seminar | March 19 | 2-4 p.m. | 597 Evans Hall

 Kyle Herkenhoff, Assistant Professor of Economics, University of Minnesota

 Department of Economics

Abstract: We develop a quantitative general equilibrium oligopsony model of the U.S. labor market, calibrated to Census data. Parameters governing labor market power are identified using new measures of within-state-firm, across-market differences in the response of employment and wages to state corporate tax changes. After calibrating to match 2014 measures of labor market power, we find that the consumption equivalent welfare gains associated with a Walrasian equilibrium, in which firms do not internalize their market power, range from 2.2 to 6.4 percent. Despite these large gains, labor market power has not contributed to the falling labor share. In our model, the distribution of wage-bill Herfindahls is a sufficient statistic for the aggregate labor share. We document that the employment-weighted wage-bill Herfindahl fell significantly from 1976 to 2014, increasing labor's share of income by 2.3 percentage points. Lastly, we simulate a minimum wage hike that binds for 10.4 percent of U.S. workers, and show that lower tail income income inequality compresses by 1 log point.

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