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Wages, Market Power and Labor Productivity: Evidence from Uruguay

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  • Casacuberta, Carlos
  • Gandelman, Néstor

Abstract

This paper examines the relationship between wages and market power at the firm level. We derive firm-specific measures of labor market power and present a natural decomposition of wage changes into shifts in labor market power and labor productivity. Our findings indicate that 50-60 percent of the variation in nominal wages is attributable to price changes, while the remaining portion, reflecting changes in real wages, is explained mainly by changes in market power and, to a lesser extent, by changes in labor productivity. Moreover, we show that firms with greater market power tend to pay higher wages, suggesting rent-sharing between employers and employees, at the cost of higher prices for consumers.

Suggested Citation

  • Casacuberta, Carlos & Gandelman, Néstor, 2025. "Wages, Market Power and Labor Productivity: Evidence from Uruguay," IDB Publications (Working Papers) 13987, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:13987
    DOI: http://dx.doi.org/10.18235/0013408
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    Keywords

    Price Markups; Labor market power;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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