Microeconometrics Seminar: Every Tuesday
Time: 12:15 pm – 13:30 pm
Date: 14th of June 2022
Room : 3001

Ines HELM (LMU)  – “Firm Expansion in Imperfect Labor Markets”

Abstract: We test for the prevalence of imperfect competition in the labor market by analysing the effects of sudden expansions among medium-sized firms on wage setting. Our approach allows us to study the wage responses to firm-specific labor demand shocks across a wide range of industries and occupations while guarding ourselves against picking up region-specific shocks or spillover effects on overall local labor demand. Our empirical strategy combines matching with an event study approach to trace wages in expanding firms relative to suitable control firms. We find that in response to an average employment shock of 30 percent, wages at event firms rise by around 1.7 percent on average implying a labor supply elasticity to the firm of about 17. This finding indicates a substantial degree of imperfect competition in the labor market. We further show that commuting times of hired workers increase following a firm expansion and that the degree of imperfect competition is higher (1) for individuals with stronger idiosyncratic preferences, (2) in industries that are more employer concentrated, and (3) when outside options are low. These results are consistent with a simple model of imperfect competition where firms derive wage-setting power from idiosyncratic preferences of workers over specific workplaces.

Joint work : Martin Friedrich and Uta Schoenberg

Organizers:

Benoît SCHMUTZ (Pôle d’économie du CREST)
Anthony STRITTMATTER (Pôle d’économie du CREST)
Sponsors:
CREST