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Do firms’ wage-setting powers increase during recessions?

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  • Todd A. Sorensen

    (University of Nevada, Reno, USA, and IZA, Germany)

Abstract

Traditional models of the labor market typically assume that wages are set by the market, not the firm. However, over the last 15 years, a growing body of empirical research has provided evidence against this assumption. Recent studies suggest that a monopsonistic model, where individual firms and not the market set wages, may be more appropriate. This model attributes more wage-setting power to firms, particularly during economic downturns, which helps explain why wages decrease during recessions. This holds important implications for policymakers attempting to combat lost worker income during economic downturns.

Suggested Citation

  • Todd A. Sorensen, 2017. "Do firms’ wage-setting powers increase during recessions?," IZA World of Labor, Institute of Labor Economics (IZA), pages 355-355, April.
    • Handle: RePEc:iza:izawol:journl:2017:n:355
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    References listed on IDEAS

    as
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    11. Michael W. L. Elsby & Donggyun Shin & Gary Solon, 2016. "Wage Adjustment in the Great Recession and Other Downturns: Evidence from the United States and Great Britain," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 249-291.
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    Cited by:

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    More about this item

    Keywords

    monopsony; wages; business cycles;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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