Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/55117 
Year of Publication: 
2011
Series/Report no.: 
IZA Discussion Papers No. 5928
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
A body of recent empirical work has found strong evidence that the labor elasticity of supply to the firm is finite, implying that firms may have wage setting power. However, these studies capture only snapshots of the parameter. We study this parameter over a period that provides substantial variation in the business cycle. Using a rich employee level dataset from the inter-war period, we are able to estimate the elasticity of supply to the firm during several recessions and expansions. Our analysis suggests that the elasticity is indeed lower during recessions, consistent with the comparative statics from the Burdett-Mortensen search model. This differential wage setting power over the business cycle provides an alternative explanation of the pro-cyclicality of wages.
Subjects: 
monopsony
labor market frictions
business cycles
JEL: 
J42
J31
J64
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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