Monopsony Makes it Big

Sydnee Caldwell, Arindrajit Dube and Suresh Naidu

No 35608, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The literature on imperfect competition in labor markets has expanded rapidly in recent years. This article provides a guide to the field, focusing on the firm-specific ("residual") labor supply elasticity as the definition of a firm's labor market power. We present a general framework showing how this elasticity nests the three widely studied sources of monopsony power: search frictions, preference heterogeneity, and employer concentration. We summarize the empirical estimates of the elasticity of labor supply, highlighting sources of possible heterogeneity. We emphasize that it is difficult to infer elasticities from markdowns (and vice versa) due to the diversity of firm wage-setting practices, illustrating this point using the interaction between monopsony and efficiency wages. We discuss how policy issues in antitrust, labor market regulation, immigration, and macroeconomics interact with monopsony and conclude by listing several areas for future research.

JEL-codes: J3 J30 J42 (search for similar items in EconPapers)
Date: 2026-08
Note: LS
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