In “Estimating Labor Market Monopsony Power from a Forward-Looking Perspective,” Economist Qingyang Han proposes a new approach to estimate the monopsony power of the labor market, namely, how firms may pay wages below the value added by their workers. Traditional literature posits that employers exert more market power when employees are willing to accept lower wages rather than seek better opportunities elsewhere. However, this research introduces a dynamic framework, showing that workers also consider wage growth trajectories at different employers when deciding to change jobs. Dr. Han finds that the separation elasticity estimated using his model is greater than that from the conventional approach, which suggests that ignoring worker responses to heterogeneous wage growth rates leads to a potential overestimation of actual monopsony power.
The article is available here.
