Exploitation of labor? Classical monopsony power and labor's share

Wyatt J. Brooks, Joseph P. Kaboski, Yao Amber Li, Wei Qian

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

How important is the exercise of classical monopsony power against labor for the level of wages and labor's share? We examine this in the context of China and India – two large, rapidly-growing developing economies. Using theory, we develop a novel method to quantify how wages are affected by the exertion of market power in labor markets. The theory guides the measurement of labor “markdowns,” i.e., the gap between wage and the value of the marginal product of labor, and the method examines how they comove with local labor market share. Applying this method, we find that market power substantially lowers labor's share of income: by up to 11 percentage points in China and 13 percentage points in India. This impact has fallen over time in both countries, however.

Original languageEnglish (US)
Article number102627
JournalJournal of Development Economics
Volume150
DOIs
StatePublished - May 2021

Keywords

  • Aggregate labor's share
  • China
  • India
  • Manufacturing
  • Market power
  • Monopsony power

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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