The Cyclical and Welfare Implications of a Complete Labor Market Structure in a Macroeconomic Model, job market paper.
Abstract: We embed the standard New Keynesian DSGE model framework with a three-segments labor market structure, each of them featuring a certain type of competition: monopsony, perfect competition and monopoly. The cyclical paths of macroeconomic variables from our model are broadly consistent with the business cycle literature. We also show that the effects of a restrictive monetary policy are stronger when firms have more labor market power relative to households. When comparing our model to the standard New Keynesian model, we find that our model better matches some standard business cycle moments such as contemporaneous cross-correlations. Furthermore, we find that the transmission of aggregate shocks is mostly quantitatively, but also qualitatively different in the two models. Finally, a welfare analysis predicts some welfare gains when the proportion of workers under the monopsonistic segment of the labor market decreases. These results suggest that the labor market structure is not a trivial feature in a macroeconomic model.
The Macroeconomic Implications of Firms' Labor Market Power
Abstract: We compare two New Keynesian dynamic stochastic general equilibrium models - one with household labor market power and the other with firms' labor market power - to understand their implications on business cycles. While our findings show that, on the whole, the introduction of a monopsonistic labor market doesn't drastically alter the standard business cycle properties established in the New Keynesian literature, some significant distinctions emerge. Specifically, we highlight that the effects of wage shocks are notably more pronounced in the model where firms hold substantial labor market power, emphasizing the distinct incentives for households and firms when the market power is exercised by one these agents. Furthermore, assuming a monopsonistic labor market structure does not necessarily enhance the empirical relevance of the New Keynesian model.
A Bayesian Estimation of a Macroeconomic Model with a Complete Labor Market Structure
Abstract: We estimate a New-Keynesian DSGE model in which we assume the coexistence of three segments in the labor market, each of them featuring a different type of competition. A first segment is characterized by monopsonistic competition where firms possess the entire labor market power. A second segment features perfect competition. Lastly, in a third segment, households hold and exert the monopoly power. Preliminary results of our estimation over the period spanning from 1948Q1 to 2019Q4 are the following. First, estimates of traditional parameters are consistent with the business cycle literature. Second, we are all able to identify and to estimate all the structural parameters stemming from our innovative labor market structure. For instance, we find a 27% steady state wage markdown for workers evolving in the monopsonistic labor market segment. Moreover, we assess whether firms’ labor market power has increased over time, as suggested by the labor economics literature. Our findings indicate a fall in the elasticity of labor supply, implying that firms’ monopsony power has increased over time.