Tirza J. Angerhofer

Description: Labor market power is naturally stronger in the short-run, where firms can exploit workers with occupation-specific human capital. Over time, this power is eroded by the need to attract new workers and prevent sector exit. We develop a dynamic model of labor market power that incorporates sector-specific choice and forward-looking firms in the Danish pharmacist labor market. We find that pharmacist entry and exit are sensitive to wages, leading to long-run elasticities that are 7% higher on average than in the short-run.  Forward-looking firms set wages 3.3% above the static equilibrium benchmark that ignores entry and exit dynamics, with large firms driving the effect. Researchers that abstract away from the entry and exit channel would overestimate monopsony power, particularly for large firms.

Abstract: Employers facing limited labor market competition may suppress wages below socially optimal levels. Unions can counteract wage suppression through collective bargaining, though they may also push wages above the socially optimal level and lead to job rationing. To assess these forces, we estimate a structural model of labor supply, labor demand, and Nash-in-Nash bargaining over wages between teacher unions and school districts in Pennsylvania's K-12 public school system from 2013 to 2020. We compare negotiated equilibrium wages and employment to pure oligopsony and social planner scenarios. On average, pure oligopsony reduces wages 16 percent below the social optimum, while collective bargaining raises wages 9 percent above the optimum. Averages masks substantial district-level heterogeneity driven by bargaining power variation. Twenty-seven percent of schools have negotiated salaries below th    e social optimum due to cross-district externalities, where high salaries at one school cause hiring reductions that increase labor supply elsewhere.