Peter Kuhn’s book review suggests the correct name for Manning’s excellent book is the far less catchy Search frictions with wage posting in motion.
A few days ago, in reply to this December NBER study, David Henderson at EconLogquestioned the idea that labor market monopsonies matter to explain sluggish wage growth and rising wage inequality. Like David, I am skeptical of this argument. However, I am skeptical for different reasons.
First, let’s point out that the reasoning behind this story is well established (see notably the work of Alan Manning). Firms with market power over a more or less homogeneous labor force which must assume a disproportionate amount of search costs have every incentive to depress wages. This can lead to reductions in growth as, notably, it discourages human capital formation (see these two papers here and here as examples). As such, I am not as skeptical of “monopsony” as an argument.
However, I am skeptical of “monopsony” as an argument. Well, what I mean is that I am skeptical of considering…
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