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A burgeoning literature in labor economics is focused on modelling employer labor market power, generally finding nontrivial estimates of monopsony power. A smaller literature also simultaneously incorporates product market power. Deb et al. (2023) is an example of applying an oligopoly-oligopsony model to the US labor market, arguing for important effects on wage levels and inequality from rising market power. I support combining IO and labor as a fruitful way of studying wages and business dynamism but argue for looking more broadly at (i) differential degrees of employer power in labor and product markets;
(ii) investigating the dynamic sources of markups (e.g., through innovation) and (iii) considering wage bargaining models, not just wage posting models, which have some starkly different implications for wage setting.
John Van Reenen
7 November 2023 Paper Number POIDWP085
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