Merger guidelines for the labor market

Wed, 01 Jan 2025 00:00:00 +0000

Research question and motivation. Antitrust review of mergers has historically focused almost entirely on harm to consumers (product-market monopoly), ignoring harm to workers (labor-market monopsony). Following the July 2021 White House executive order and the DOJ’s monopsony-based challenge to the Penguin Random House (PRH)/Simon & Schuster (SS) publishing merger, the agencies are now putting buyer power at the center of policy. The paper asks: how should Herfindahl-based merger-review thresholds, designed for product markets, perform if applied to local labor markets, and what efficiency gains would a merger need to leave workers unharmed?

Minimum Wages, Efficiency, and Welfare

Research question. Can minimum wages improve welfare through efficiency — by correcting monopsony-driven under-employment — and, if so, by how much? What is the optimal minimum wage, and how much of the welfare gain from a higher minimum wage comes from efficiency versus redistribution?

Model and methodology. The paper develops a tractable general equilibrium oligopsony model with heterogeneous workers (four types: non-high-school, high-school, college workers, and capital owners) and heterogeneous firms (varying in total factor productivity), embedded in a continuum of local labor markets where firms compete strategically in Cournot fashion. Firms face downward-sloping labor supply curves; their market power generates wages below the marginal revenue product of labor (markdowns). The model is calibrated to US data using the Census Longitudinal Business Database (LBD, 2014), the Bureau of Labor Statistics Current Population Survey (CPS, 2019), and the Survey of Consumer Finances (SCF). Key calibration targets include: average firm size of 22.83 workers (LBD), 29 percent of workers earning below $15/hr (CPS), labor and capital income shares, and household-level earnings and capital income ratios. The model is validated by quantitatively replicating four strands of empirical evidence: (i) reallocation effects of the German minimum wage introduction (Dustmann et al., 2021); (ii) employer spillover responses to Amazon’s voluntary $15 minimum wage (Derenoncourt et al., 2021); (iii) wage distribution compression evidence from Brazil (Engbom and Moser, 2021); and (iv) heterogeneous employment effects by market concentration (Azar et al., 2019).

Kyle Herkenhoff | Macro Paper Warehouse

Merger guidelines for the labor market

Minimum Wages, Efficiency, and Welfare