RT Journal Article
SR Electronic
T1 Labor Market Competition and Employment Adjustment over the Business Cycle
JF Journal of Human Resources
JO J Hum Resour
FD University of Wisconsin Press
SP S87
OP S110
DO 10.3368/jhr.monopsony.0119-9954R1
VO 57
IS S
A1 Douglas A. Webber
YR 2022
UL http://jhr.uwpress.org/content/57/S/S87.abstract
AB 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.