The next Economics Seminar of Paris-Saclay will take place on Thursday, May 11 from 12h15 to 13h15. Ani Guerdjikova (U. Grenoble Alpes) will present “Market Selection and the Evolution of Bargaining Power in Labor Markets” (joint with Pablo Beker).
How does firms’ bargaining power impact outcomes in labor markets? How does bargaining power evolve driven by market forces? The goal of this paper is to understand the factors determining the distribution of bargaining power in an economy and to seek explanation for the observed empirical facts. To answer the first question, we identify conditions on the firms’ technology under which profits are non-monotonic in bargaining power and thus, the firms obtaining maximal profits will not be those with a bargaining power of one. In as far as the optimal bargaining power is technology-dependent, this might explain the observed variability of bargaining power across industries. We also examine the dependence of the optimal bargaining power on market conditions, specifically, on the price of the output good. To address the second question, we propose a dynamic model of an industry with endogenous entry and exit, heterogeneity with respect to bargaining power and demand subject to exogenous shocks. The Markov equilibrium characterizes the long-run distribution of bargaining power. The model allows for heterogeneity in bargaining power within a given period. Furthermore, the distribution of bargaining power can vary in time with the state of the economy. These features allow us to explain observed variability of bargaining power across firms and relate the labor wedge to the state of the economy.