Oligopsonies over the Business Cycle

Daniel Monte () and Roberto Pinheiro

No 20-06, Working Papers from Federal Reserve Bank of Cleveland

Abstract: With a duopsony model, we show how the degree of labor market slack relates to earnings inequality and firm size distribution across local labor markets and the business cycle. In booms, due to the high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving in or out of a recession, there is an “accommodation” phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We show that the impact of economic shocks on wage dispersion and inequality may vary not only due to the nature of the shock, but also based on which equilibrium the economy may have settled in.

Keywords: Labor Market Slack; Wage Inequality (search for similar items in EconPapers)
JEL-codes: J21 J23 J42 L13 (search for similar items in EconPapers)
Pages: 34
Date: 2020-02-27
New Economics Papers: this item is included in nep-bec and nep-lma
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DOI: 10.26509/frbc-wp-202006

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