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Monopsony Amplifies Distortions from Progressive Taxes

Author

Listed:
  • David Berger
  • Kyle Herkenhoff
  • Simon Mongey
  • Negin Mousavi

Abstract

Progressive income taxes distort hiring and wages when firms have labor market power. We characterize this novel monopsony cost of progressivity in a simple monopsony economy and derive efficiency wedges that depend on progressivity. A simple quantification of these wedges points to the possibility that the monopsony cost may be of similar magnitudes to redistribution and insurance benefits.

Suggested Citation

  • David Berger & Kyle Herkenhoff & Simon Mongey & Negin Mousavi, 2024. "Monopsony Amplifies Distortions from Progressive Taxes," AEA Papers and Proceedings, American Economic Association, vol. 114, pages 555-560, May.
    • Handle: RePEc:aea:apandp:v:114:y:2024:p:555-60
    DOI: 10.1257/pandp.20241002
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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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