Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282656 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16529
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Imperfect competition in labor markets can lead to efficiency losses and lower aggregate output. In this paper, we study whether differences in competitiveness of labor markets can help explain differences in GDP per capita across countries. We structurally estimate a model of oligopsony with free entry for countries at different stages of development and show that the labor supply elasticity, which determines the extent of firms' labor market power, is increasing with GDP per capita. Wage mark-downs range from 55 percent among low-income countries to around 23 percent among the richest. Output per capita in poorer countries would increase by up to 69 percent if their labor markets were as competitive as in countries at the top of the development ladder.
Subjects: 
labor market power
oligopsony
development
inequality
JEL: 
J42
L13
O11
E24
Document Type: 
Working Paper

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