Monopsony in Growth Theory

Pietro Garibaldi and Enrico Duilio Turri

No 19652, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The secular decline in the labor share and the long-run reduction in labor supply suggest that imperfect labor markets can play a role in long-run economic growth. This paper introduces oligopsony and oligopoly power in a Neoclassical Growth Model with superstar firms. The endogenous markdown of productivity on wages is the key driver of growth misallocation in the asymptotic balanced growth path. The model can be calibrated to simultaneously rationalize the joint trends of GDP growth, declining labor share and hours worked. For the US, the consumption equivalent loss with respect to the optimal growth path is calibrated around 7.5 percent. The theory is also coherent with growing markdown in the US estimated from a simple accounting exercise. An extension of the model with hand-to-mouth workers and capitalists delivers balanced growth with increasing inequality. While - in this context- proportional taxation distorts equilibrium labor supply, a raising minimum wage can restore efficient growth.

Keywords: Monopsony; Growth; Misallocation (search for similar items in EconPapers)
JEL-codes: O40 O41 (search for similar items in EconPapers)
Date: 2024-11
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