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Research ArticleArticle
Open Access

Labor Market Competition and Employment Adjustment Over the Business Cycle

Douglas A. Webber
Published online before print April 09, 2020, 0119-9954R1; DOI: https://doi.org/10.3368/jhr.monopsony.0119-9954R1
Douglas A. Webber
Temple University
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Abstract

Using linked employer-employee data which 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 to 1.01) since the late 1990’s, 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 monopsonistie firms smooth their employment behavior, growing at a rate lower than relatively competitive firms in good economic elimatos and slightly higher during poor economic climates. This conforms with the predictions of recent macroeconomic search models which suggest that frictions in the economy may actually reduce employment fluctuations due to adjustment costs associated with hiring/laying off workers.

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: 58 (3)
Journal of Human Resources
Vol. 58, Issue 3
1 May 2023
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Labor Market Competition and Employment Adjustment Over the Business Cycle
Douglas A. Webber
Journal of Human Resources Apr 2020, 0119-9954R1; 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 2020, 0119-9954R1; DOI: 10.3368/jhr.monopsony.0119-9954R1
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