Product market regulation and labour market power
This paper examines how changes in product market entry barriers affect firms’ labor market power. We develop a simple oligopsony model suggesting that product market reforms lower entry costs and increase the equilibrium number of firms, which in turn increase employment opportunities for workers. The resulting loss of oligopsony power reduces the ability of employers to pay wages below the marginal product of labor, i.e. to apply a positive wage markdown. We test our theory empirically taking advantage of quasi-exogenous variation in investment restrictions across 420 narrowly-defined manufacturing product markets in Indonesia. To estimate markdowns, we use granular information on prices and quantities of nine-digit products and intermediate inputs from a highly representative sample of Indonesian manufacturing plants. Using this approach, we provide estimates suggesting that the removal of regulatory barriers to entry would significantly reduce markdowns.
Date:
16 November 2022, 17:00 (Wednesday, 6th week, Michaelmas 2022)
Venue:
Nuffield College, New Road OX1 1NF
Venue Details:
Staircase L Conference Room
Speaker:
Giorgio Presidente (University of Oxford)
Organising department:
Department of Economics
Part of:
Postdoctoral Fellows Seminar
Booking required?:
Not required
Audience:
Members of the University only
Editors:
Melis Clark,
Emma Lane
