Work in Progress:
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.
Regulation by Public Options: Evidence from Pension Funds
with Pablo Blanchard and Sebastián Fleitas
Many developing countries have private firms administering and investing workers’ savings. By relying on private firms, governments protect funds from short-term fiscal needs at the cost of potentially creating market power for these firms. The current political debate in many countries revolves around the role of the high fees charged by private firms in explaining low replacement rates, and the possibility that public options can solve this problem. In this paper, we analyze the equilibrium welfare effects of using public options to regulate market power in the market for individual capitalization pension funds. We develop and estimate a dynamic model of demand and supply in the market for pension funds in Uruguay. We find that the presence of a public option reduces equilibrium fees. Replacing the public option with a private one would increase the fees of the private firms by 16% on average, and would more than double the fee of the substitute private option.
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)
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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