Search Results
Working Paper
Hysteresis via Endogenous Rigidity in Wages and Participation
We document that the past three ?jobless? recoveries also featured asymmetries in labor force participation and labor compensation, with each falling to new lows during each cycle. We model these asymmetries as resulting from a strategic complementarity in firms' wage setting and workers' job search strategies. Strategic complementarity results in a continuum of possible equilibria with higher-wage equilibria welfare dominating lower-wage equilibria. Assuming that no economic agent deviates from an existing strategy unless deviation is a unilateral best response, the model exhibits (1) ...
Report
The Macroeconomic Dynamics of Labor Market Policies
We develop a dynamic macroeconomic framework with worker heterogeneity, putty-clay adjustment frictions, and firm monopsony power to study the distributional impact of labor market policies over time. Our framework reconciles the well-known tension between low short-run and high long-run elasticities of substitution across inputs of production, especially among workers with different skills within a same education group. We use this framework to evaluate the effects of redistributive policies such as the minimum wage and the Earned Income Tax Credit. We argue that since these policies ...
Working Paper
Oligopsonies over the Business Cycle
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 ...
Working Paper
A Spanner in the Works: Restricting Labor Mobility and the Inevitable Capital-Labor Substitution
We model an environment with overlapping generations of labor to show that policies restricting labor mobility increase a firm's monopsony power and labor turnover costs. Subsequently, firms increase capital expenditure, altering their optimal capital-labor ratio. We confirm this by exploiting the statewide adoption of the inevitable disclosure doctrine (IDD), a law intended to protect trade secrets by restricting labor mobility. Following an IDD adoption, local firms increase capital expenditure (capital-labor ratio) by 3.5 percent (5.5 percent). This result is magnified for firms with ...
Working Paper
Monopsonistic Wage-setting and Monetary Policy
Research in labor economics has documented evidence of labor market monopsony. Nevertheless, macroeconomic studies routinely consider households' wage-setting under monopolistic competition. We introduce firms' wage-setting under monopsonistic competition in an otherwise standard sticky-price model. This substantially alters the implications for wage dynamics, welfare, and policy. Compared to its counterpart model with monopolistic wage-setting, our model indicates that the wage Phillips curve includes the wage markdown as its main driver and has a steeper slope generated by strategic ...
Working Paper
Outsourcing Policy and Worker Outcomes: Causal Evidence from a Mexican Ban
A weakening of labor protection policies is often invoked as one cause of observed monopsony power and the decline in labor’s share of income, but little evidence exists on the causal impact of labor policies on wage markdowns. Using confidential Mexican economic census data from 1994 to 2019, we document a rising trend over this period in on-site outsourcing. Then, leveraging data from a manufacturing panel survey from 2013 to 2023 and a natural experiment featuring a ban on domestic outsourcing in 2021, we show that the ban drastically reduced outsourcing, increased wages, and reduced ...
Working Paper
An Information-Based Theory of Monopsony Power
We develop a tractable model of monopsony power based on information frictions in job search. Workers and firms choose probabilistic search strategies, with information costs limiting how precisely they can target matches. Firms post wages strategically, anticipating application behavior and exploiting a first-mover advantage. The model nests both directed and random search as limiting cases and yields a closed-form wage equation that shows the effects on wage-setting power of search frictions, labor market tightness and sorting. Wage markdowns in equilibrium arise not only from limited labor ...
Working Paper
These Caps Spilleth Over: Equilibrium Effects of Unemployment Insurance
The design of US unemployment insurance (UI) policy--which features benefits assigned as a percentage of past wages up to a cap--engenders tests for spillovers from policy variation to workers who are not directly treated. We test for and find a pattern of spillovers from state-level UI policy changes that cannot be neatly reconciled with workhorse or cutting-edge models of UI spillovers. Instead, we show that the documented pattern conforms with the predictions of a canonical model of information frictions: wage posting with random search. Taken together, our results provide novel evidence ...
Working Paper
An Information-based Theory of Monopsony Power
We develop a tractable model of monopsony power based on information frictions in job search. Workers and firms choose probabilistic search strategies, with information costs limiting how precisely they can target matches. Firms post wages strategically, anticipating application behavior and exploiting a first-mover advantage. The model nests both directed and random search as limiting cases and yields a closed-form wage equation that shows the effects on wage-setting power of search frictions, labor market tightness, and sorting. Wage markdowns in equilibrium arise not only from limited ...
Report
The Payoffs of Higher Pay: Labor Supply and Productivity Responses to a Voluntary Firm Minimum Wage
What are the returns to firms of paying more? We study a Fortune 500 firm’s voluntary firm-wide $15/hour minimum wage, which affected some warehouses more than others. Using a continuous difference-in-differences design, we find that a $1/hour pay increase (5.5 percent) halves worker departures, reduces absenteeism by 18.6 percent, and increases productivity (boxes moved per hour) by 5.7 percent. These productivity gains fully defrayed increased labor costs, offsetting the firm’s incentive to mark down wages. We develop a simple model that connects efficiency-wage incentives and monopsony ...