NBER

Wei Qian

University of Notre Dame
Departments of Economics

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

March 2019Exploitation of Labor? Classical Monopsony Power and Labor's Share
with Wyatt J. Brooks, Joseph P. Kaboski, Yao Amber Li: w25660
How important is the exercise of classical monopsony power against labor for the level of wages and labor's share? We examine this in the context of China and India – two large, rapidly-growing developing economies. Using theory, we develop a novel screen to quantify how wages are affected by market power exerted in labor markets, either by a single firm or a group of cooperating firms. The theory guides the measurement of labor “markdowns”, i.e., the gap between wage and the value of the marginal product of labor, and the screen examines how they comove with local labor market share and the share of cooperating firms. Applying this test, we find that markdowns substantially lower the labor share: by up to 10 percentage points in China and 15 percentage points in India. This impact has fal...

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