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Oligopsonies over the Business Cycle

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  • Daniel Monte
  • Roberto Pinheiro

Abstract

With a duopsony model, we show how the degree of labor market slack relates to earnings inequality and firm size distribution across local labor markets and the business cycle. In booms, due to the high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving in or out of a recession, there is an “accommodation” phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We show that the impact of economic shocks on wage dispersion and inequality may vary not only due to the nature of the shock, but also based on which equilibrium the economy may have settled in.

Suggested Citation

  • Daniel Monte & Roberto Pinheiro, 2020. "Oligopsonies over the Business Cycle," Working Papers 20-06, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:87536
    DOI: 10.26509/frbc-wp-202006
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor Market Slack; Wage Inequality;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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