The Divergent Dynamics of Labor Market Power in Europe
IMF Working Papers, December 9, 2022
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- The Divergent Dynamics of Labor Market Power in Europe
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Bibliographic details
- Authors: Federico J Diez, Davide Malacrino, Ippei Shibata
- Published: December 9, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400227202.001
Summary
- Study uses firm-level data from 10 European countries to document new stylized facts about firms’ labor market power.
- Authors: Federico J Diez, Davide Malacrino, Ippei Shibata.
- Publication date: December 9, 2022.
- Series: IMF Working Paper No. 2022/247, Pages: 27, DOI: https://doi.org/10.5089/9798400227202.001, ISBN: 9798400227202, ISSN: 1018-5941.
Stylized facts on labor market power
- Pervasive presence of labor market power across countries and sectors, measured by average and median markdowns above unity.
- Dynamics over time:
- Weighted average markdowns have increased 1.3 percent between 2000 and 2017.
- Median and unweighted average markdowns have decreased between 2000 and 2017, indicating divergent paths across the markdown distribution.
- High-markdown firms characteristics:
- Tend to have a large footprint in both product and input (labor) markets.
- Most commonly listed and concentrated in services sectors.
Decomposition analysis
- A Melitz-Polanec decomposition of the change in weighted average markdown finds:
- Increase in weighted average markdown driven by reallocation of resources towards high-markdown incumbents.
- Extensive margin contribution via net entry of high-markdown firms.
- Decline in within-firm markdowns, which contrasts with the reallocation and entry effects.
Key subject areas and keywords
- Subject: Economic sectors, Employment, Labor, Labor markets, Services sector, Wages.
- Keywords: Employment, Europe, high-markdown firm, high-markdown incumbent, labor market power, Labor markets, markdown distribution, markdowns, Monopsony, secular trends, Services sector, Wages, weighted average markdown.
Implications
- Highlights the importance of using granular and broad-based firm-level data to thoroughly analyze firms’ labor market power.
- Indicates that aggregate measures (weighted vs. median/unweighted) can mask divergent dynamics across the firm distribution, with policy relevance for assessing competition and labor market interventions.
IMF Working Paper: "The Divergent Dynamics of Labor Market Power in Europe" by Federico J Diez, Davide Malacrino, and Ippei Shibata (December 9, 2022).
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