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Labor market competition over the business cycle
Author(s) -
Monte Daniel,
Pinheiro Roberto
Publication year - 2021
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.13000
Subject(s) - economics , business cycle , earnings , labour economics , recession , boom , competition (biology) , market power , shock (circulatory) , productivity , secondary labor market , wage , demand shock , monetary economics , market economy , macroeconomics , labor relations , medicine , ecology , accounting , environmental engineering , biology , engineering , monopoly
With a duopsony model, we study how earnings inequality, firm size distribution, and labor market slack vary across local labor markets and the business cycle. In booms, due to high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving into or out of a recession, there is an “accommodation” phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We show that the impact of economic shocks on wage dispersion and inequality may vary not only due to the nature of the shock, but also based on which equilibrium the economy may have settled in.