Law, Economics & Organization Workshop: "Why Has Antitrust Law Failed Workers?" and "Estimating Labor Market Power" with UPenn Social Policy & Practice Prof. Ioana Marinescu

Ioana Marinescu, Associate Professor at the University of Pennsylvania School of Social Policy & Practice, will be presenting from two draft papers, "Why Has Antitrust Law Failed Workers?" (joint with Eric A. Posner) and "Estimating Labor Market Power" (joint with José Azar and Steven Berry).

The abstract of "Why Has Antitrust Law Failed Workers?" reads:

In the last several years, economists have learned about an antitrust problem of vast scope. Far from approximating the conditions of perfect competition as long assumed, most labor markets are characterized by monopsony—meaning that employers pay workers less than their productivity because workers lack a credible threat to quit and find a higher-paying job in the same market. Yet while antitrust law regulates labor monopsony in the same way as it regulates monopoly on the product market side, antitrust litigation against employers is rare. We document both the magnitude of labor monopsony and the paucity of cases, and argue that this “litigation gap” exists because antitrust case law, which has developed through product-side litigation, is poorly tailored to labor-side problems. We conclude with four proposals for reform of antitrust law so it can better deter labor monopsony.

The abstract of "Estimating Labor Market Power" reads:

How much power do employers have to suppress wages below marginal productivity? It depends on the firm-level labor supply elasticity. Leveraging data on job applications from the large job board CareerBuilder.com, we estimate the wage impact on workers’ choice among differentiated jobs in the largest occupations. We use a nested logit model of worker’s utility for applying to jobs with varying wages and characteristics, including distance from the potential worker’s home. We account for the endogeneity of wages by using several different instrumental variable strategies. We find that failing to instrument results in implausibly low elasticities, whereas plausible instruments result in more elastic estimates. Still, the implied market-level labor supply elasticity is about 0.6, while the firm-level labor supply elasticity is about 5.8. This implies that workers produce about 17% more than their wage level, consistent with employers having significant market power even for the largest occupational labor markets.

Both draft papers are available at the LEO Workshop main page.