On the use of the factor share approach to measure labor market power

Carlos Casacuberta () and Nestor Gandelman ()
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Carlos Casacuberta: Universidad de la Republica
Nestor Gandelman: Universidad ORT Uruguay

Economics Bulletin, 2025, vol. 45, issue 3, 1365 - 1375

Abstract: The production approach to market power estimation requires accurate measures of output-input elasticities. This note shows that when there is employer or employee market power in labor markets, the cost share approach cannot identify the output-labor elasticity needed to estimate the labor market power indicator. A naïve application of this method biases the labor market power indicator towards perfect competition. Therefore, researchers should implement alternative estimation strategies, as the econometric estimation of the production function.

Keywords: market power; production function estimation; cost share approach (search for similar items in EconPapers)
JEL-codes: J3 L1 (search for similar items in EconPapers)
Date: 2025-09-30
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