in a recent exchange [1], some doubt the existence of monopoly power in the labor market. A recent article documents evidence of manufacturers exhibiting this ability.from Leaf (2022):
We show that the degree of market power of employers is large and pervasive in U.S. manufacturing. On average, workers in manufacturing plants earn only 65 cents for every dollar of profit they generate. …we find that the market power of employers declined between the late 1970s and early 2000s, but has since increased sharply.
Provides the following results:
source: Leaf (2022).
The following explanation is given:
Factories charge an average price cut of 1.53, meaning workers are charged just $1 for every $1.53 (or 65 cents per dollar) of profits earned by the employer.
This means that market power varies widely between and within sectors. Interestingly, in the analysis, the correlation between concentration and the magnitude of the measured price drop was weaker.
The corresponding composite measure of market power shows a decline over time and a reversal starting in 2002.
source: Leaf (2022).
Earlier working papers on which some of these results were based, Hershbein, Macaluso and Yeh (2019). (As a side note, those who read this paper will find it nostalgic if you did your PhD research in the first edition of Hal Varian’s Microeconomic Analysis and have estimated the translog production function.)
see earlier discuss Geographical differences in labor market monopoly, using concentration estimates.
