Labor Market Power and the Effects of Fiscal Policy

Christian Bredemeier (), Babette Jansen () and Roland Winkler ()
Additional contact information
Christian Bredemeier: University of Wuppertal and IZA
Babette Jansen: University of Antwerp

No 2023-015, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: We propose a new fiscal transmission channel based on countercyclical monopsony power in the labor market. We develop a Two-Agent New Keynesian model incorporating a time-varying degree of monopsony power, with workers valuing various job aspects and firms having wage-setting power, inversely related to the elasticity of labor supply to individual firms. As government spending increases, labor supply to individual firms becomes more elastic, creating more competition, larger fiscal multipliers, and stronger distributional consequences. We examine this channel's interactions with other fiscal transmission channels. Finally, we confirm empirically the model's prediction of reduced employer market power following government spending expansions.

Keywords: fiscal policy; labor-market monopsony; income inequality (search for similar items in EconPapers)
JEL-codes: E25 E32 E62 J42 (search for similar items in EconPapers)
Date: 2023-10-18
New Economics Papers: this item is included in nep-com, nep-dge and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://oweb.b67.uni-jena.de/Papers/jerp2023/wp_2023_015.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2023-015

Access Statistics for this paper

More papers in Jena Economics Research Papers from Friedrich-Schiller-University Jena
Bibliographic data for series maintained by Markus Pasche ().