Firm Dynamics, Monopsony, and Aggregate Productivity Differences

Tristany Armangué-Jubert, Tancredi Rapone and Alessandro Ruggieri
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Tancredi Rapone: Universitat Autonoma de Barcelona

Review of Economic Dynamics, 2026, vol. 59

Abstract: This paper studies how labor market power affects firm dynamics and aggregate productivity. We build a dynamic model of neoclassical monopsony with occupational choice, firm growth, and productivity-enhancing technology adoption. Labor market power lowers efficiency and leads to aggregate output losses by distorting the allocation of labor, entrepreneurship, and innovation decisions. The model is consistent with cross-country evidence of higher life cycle firm growth and higher productivity investment in more competitive labor markets and can explain 25 percent of the differences in aggregate productivity across countries. We find that about 85 percent of the losses are attributable to the lack of technology adoption induced by weaker labor market competition, suggesting that efficiency losses may be greater than those estimated by previous studies. (Copyright: Elsevier)

Keywords: Monopsony; firm dynamics; technology adoption; productivity (search for similar items in EconPapers)
JEL-codes: E24 J42 L13 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1016/j.red.2025.101231

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