Labor market power and the effects of fiscal policy

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Jena Economic Research Papers ; No. 2023-015

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policy ; Monopsony; Segmented Labor Markets ; Aggregate Factor Income Distribution ; Business Fluctuations; Cycles
• Subject: fiscal policy ; labor-market monopsony ; income inequality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bredemeier, Christian ; Jansen, Babette ; Winkler, Roland
• Event: Veröffentlichung
• (who): Friedrich Schiller University Jena, Faculty of Economics and Business Administration
• (where): Jena
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/283186
• Last update: 10.03.2025, 11:42 AM CET