Labor-Market Power, Deadweight Loss, and Technology Adoption

Michael Rubens

No 30586, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Buyer power can induce deadweight loss, but it can also incentivize buyers’ technology adoption by reducing investment holdup. In this paper, I construct a structural model that incorporates these two opposing forces, and use it to quantify the net welfare effects of employers’ market power over their workers. Applying the model to the late-19th-century Illinois coal mining industry, a textbook monopsony example that experienced a large technological shock due to the invention of mechanical cutting machines, I find that an increase in employer power would have induced substantially higher mechanization rates. Assuming exogenous capital investment leads to overestimating the consumer and labor welfare losses from employer power by 13% and 7%.

JEL-codes: J42 L11 L13 N52 (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-com, nep-his, nep-ind, nep-lma and nep-pay
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