Labor markets for specialized occupations adjust slowly: training is limited and takes time, so growing sectors cannot quickly expand their trained workforce. This paper develops a dynamic oligopsony model with an endogenous labor pool in which forward-looking firms internalize how the wages they set today shape the future supply of trained workers. Relative to a myopic benchmark, this intertemporal tradeoff  reduces markdowns by 20.6%, so static models overstate the labor market power of large firms. Because the trained pool is shared across firms, the tradeoff is concentrated among large employers, who internalize a free-riding problem that small firms do not. Estimating the model on the Danish pharmaceutical industry (2008–2016), we show that the offsetting effect of forward-lookingness is strongest when sectors are growing and concentrated — and disappears when they decline — so that steady-state markdowns are not sufficient to characterize labor market power.

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.

We show that combining two common sources of monopsony power, differentiated worker preferences and oligopsony, mechanically attenuates the wage response to changes in market structure when using common logit models. Differentiated preferences, when modeled as logit shocks, give each firm residual market power that increases as its labor share falls, counteracting the pro-competitive effect of additional firms. In the limiting case of perfectly elastic labor demand with pure logit labor supply and Cournot competition, they offset exactly implying that adding more firms to a market has no effect on market power. We discuss three modeling choices that partially mitigate this tension: Bertrand strategic interactions, downward-sloping product demand, and individual-level heterogeneity.