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Research ArticleArticles
Open Access

Labor Market Competition and Employment Adjustment over the Business Cycle

Douglas A. Webber
Journal of Human Resources, April 2022, 57 (S) S87-S110; DOI: https://doi.org/10.3368/jhr.monopsony.0119-9954R1
Douglas A. Webber
Douglas Webber is an Economist at the Federal Reserve Board
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Abstract

Using linked employer–employee data that covers the majority of U.S. employment, I examine how frictions in the labor market have evolved over time. I estimate that the labor supply elasticity to the firm declined significantly (1.20–1.01) since the late 1990s, with the steepest declines occurring during the financial crisis. I find that this decline in labor market competition led to at least a 4 percent drop in earnings for the average worker. I also find evidence that relatively monopsonistic firms smooth their employment behavior, growing at a rate lower than relatively competitive firms in good economic climates and slightly higher during poor economic climates. This conforms with the predictions of recent macroeconomic search models that suggest frictions in the economy may actually reduce employment fluctuations due to adjustment costs associated with hiring and laying off workers.

JEL Classification:
  • E32
  • J42
  • J63
  • Received October 2019.
  • Accepted March 2020.

This open access article is distributed under the terms of the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0) and is freely available online at: http://jhr.uwpress.org.

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Journal of Human Resources: 57 (S)
Journal of Human Resources
Vol. 57, Issue S
1 Apr 2022
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Labor Market Competition and Employment Adjustment over the Business Cycle
Douglas A. Webber
Journal of Human Resources Apr 2022, 57 (S) S87-S110; DOI: 10.3368/jhr.monopsony.0119-9954R1

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Labor Market Competition and Employment Adjustment over the Business Cycle
Douglas A. Webber
Journal of Human Resources Apr 2022, 57 (S) S87-S110; DOI: 10.3368/jhr.monopsony.0119-9954R1
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Keywords

  • E32
  • J42
  • J63
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