Working Papers:
with Juan Luis Fuentes
Policymakers and competition authorities are concerned about the negative effects that labor market power has on workers and the efficient functioning of the labor market. The minimum wage has the potential to curb firms' power, raising employment and wages (Robinson, 1933). However, how does using the minimum wage to mitigate firms’ labor market power impact social welfare, when these firms differ in labor productivity and degree of product market power? Do the interests of consumers and workers align or conflict? We answer these questions in the context of sector-specific minimum wages. In our framework, raising the minimum wage affects labor and product market equilibrium. First, it may either increase, reduce or have no effect at all on the marginal cost of a given firm, depending on its level relative to the marginal revenue product of labor. Second, the minimum wage influences the strategic pricing decisions of competing firms in the product market, even when the own-cost effect is null. We extend a model of supply and demand in an oligopolistic industry with rich consumer preferences and endogenous marginal costs, to incorporate firms' production, employment and wages. We estimate the model using a unique dataset from the beer industry in Uruguay, where firms of different sizes producing imperfect substitutes compete. We find that the minimum wage that minimizes employers' power and enhances labor market efficiency also reduces consumer surplus and competition in the product market. The presence of firms with labor and product market power poses a challenge for policymakers aiming to curb employers' power without causing unintended harm.
Presented at: Boston College, EARIE, U. of Michigan, SEA, dECON FCS.
with Pablo Blanchard and Sebastián Fleitas
We study the equilibrium welfare effects of using state-owned enterprises (SOEs) to discipline market power. We estimate a dynamic equilibrium model of Uruguay’s individual capitalization pension system, where a high-quality SOE competes with private firms in the presence of worker inertia. We find that the presence of a SOE lowers equilibrium fees and increases investment returns. Replacing it with a private firm would more than double its fee and raise private firms’ fees by 8 percent. Reducing inertia mitigates but does not offset privatization. Comparing policy instruments, we show that direct price regulation yields higher welfare gains than competition through an SOE.
CEPR Discussion Paper 21152
Presented at: Boston College, EARIE, RIDGE IO*, Barcelona Summer Forum*, CB of Uruguay*, CB of Chile*, LACEA*.
Recipient of Maria Viñas 2024 Grant from the National Research and Innovation Agency of Uruguay (ANII)
Work in Progress:
Effects of Product Availability: Experimental Evidence
with Christopher Conlon, Julie Mortimer and Paul Sarkis
A growing literature demonstrates that the most valuable piece of information for identification and estimation of heterogeneous consumer preferences is second-choice data. A common way to measure second-choice data is via surveys or conjoints, which may capture stated rather than revealed preferences. We develop a method to recover second choices from aggregate data either via field experiments or observationally that is consistent with consumers making discrete choices under a minimal set of restrictions from consumer theory. We illustrate our method on an experiment where we randomly remove products from vending machines.
*Presented by co-authors
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