Doctoral Dissertation Research in Economics: The Impact of Product Market Competition on the Labor Market

New York University, New York NY

Investigators

Abstract

This award will fund a doctoral dissertation that uses unique data to measure the effects of high market concentration on workers, including work to better understand the links between the competition a firm faces for the products it sells and the competition it faces for workers it seeks to employ. Economic theory predicts that workers will earn higher wages when there are many employers offering jobs. However, in some local areas there are only a few employers. In this kind of concentrated labor market, employers have an advantage because workers lack viable alternative offers. Furthermore, if a firm has a dominant position in the market for the product/s it sells, it may also be dominant in the labor market. This kind of firm would then have an outsized role on both its workers and its consumers. The project will systematically investigate how concentration affects wages, employment spell duration, and profit pass-through. The results of this project may help policymakers understand the costs and benefits of policies designed to reduce market concentration. This project is based on three administrative datasets spanning the years 2008 to 2020. The first is the quasi-universe of employment spells year-by-year; the research team will use this to systematically construct the employment and wage bill concentration indexes. This first dataset lacks the ability to track workers over time for confidentiality reasons. The second dataset is an employer-employee panel with information on wages, duration of spell, industry, occupation and some demographic information. This dataset allows us to follow workers and firms over the years. Finally, the third dataset contains balance sheet information at the firm’s level (sales, profits, inventories, etc.). What makes these datasets unique is the possibility to merge them using a unique firm identifier. The project builds the concentration index by labor market and merges that measure with our panel data and each firm’s balance sheet. The result is a new panel in which we can look at how wages vary depending on concentrations in the product and labor market. This analysis represents the core of the project. The first step will be to properly define labor markets. We will rely on traditional notions like occupation by commuting zone, in addition to a clustering approach based workers’ transitions across firms (applying newly developed techniques in stochastic block modeling). We will then run labor regressions to document patterns between wages (level and growth), concentration and profits and sales. We want to document whether workers in more concentrated markets are better or worse off. As pointed out above, in more concentrated markets, firms are likely to have more bargaining power, yet they should also be more productive firms, and therefore be paying higher wages. These regressions will not inform us on the causality of market concentration on wages though. To alleviate that point, the next step of the project will be to propose a search-and-matching model in which a discrete number of firms compete for workers and use our empirical results to calibrate it. We will then be able to run counterfactual analyses on the impact of concentration on workers’ welfare. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.