Product Market Monopolies and Labor Market Monopsonies / Massimiliano Cali, Giorgio Presidente.

Format:

Book

Author/Creator:

Cali, Massimiliano, author. .

Presidente, Giorgio, author.

Series:

Policy research working papers.

Policy research working papers

Language:

English

Subjects (All):

Labor market.

Physical Description:

1 online resource (57 pages).

Place of Publication:

Washington : World Bank, 2023.

Summary:

This paper unveils a novel externality of product market regulation in the labor market. It shows theoretically and empirically that higher barriers to entry in product markets translate into higher labor market power, measured by the wage markdown-the ratio between the marginal product of labor and the wage. The literature suggests that this wedge can distort factor allocation, resulting in lower aggregate output and employment, but also in higher inequality through a reduction in the labor share of national output. Using variation in investment restrictions across 346 manufacturing product markets in Indonesia, the analysis finds that wage markdowns increase by 25 percent in product markets that become subject to investment restrictions. The result is rationalized using a simple oligopsony model in which higher entry costs reduce the equilibrium number of firms, thereby limiting employment options for workers and, hence, their labor market power. Instrumental variable estimates support the model's prediction that lower entry is the main driver of the positive relationship between investment restrictions and wage markdowns.

Notes:

Description based on publisher supplied metadata and other sources.

Publisher Number:

10.1596/1813-9450-10388