Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/283186 
Year of Publication: 
2023
Series/Report no.: 
Jena Economic Research Papers No. 2023-015
Publisher: 
Friedrich Schiller University Jena, Faculty of Economics and Business Administration, Jena
Abstract: 
We propose a new fiscal transmission channel based on countercyclical monopsony power in the labor market. We develop a Two-Agent New Keynesian model incorporating a time-varying degree of monopsony power, with workers valuing various job aspects and firms having wage-setting power, inversely related to the elasticity of labor supply to individual firms. As government spending increases, labor supply to individual firms becomes more elastic, creating more competition, larger fiscal multipliers, and stronger distributional consequences. We examine this channel's interactions with other fiscal transmission channels. Finally, we confirm empirically the model's prediction of reduced employer market power following government spending expansions.
Subjects: 
fiscal policy
labor-market monopsony
income inequality
JEL: 
E62
J42
E25
E32
Document Type: 
Working Paper

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