Does Monopsony Matter for Innovation? (R&R Econometrica)
Abstract
This paper examines how firms’ monopsony power—their ability to depress wages by restricting employment—in the market for inventors affects U.S. innovation and economic growth. Using an instrumental variable strategy, I estimate firm-level inventor labor supply elasticities and find that firms face less than perfectly elastic supply, with larger employers wielding greater monopsony power. I develop and quantify a heterogeneous firms growth model with size-dependent monopsony power that matches this evidence. The model suggests that monopsony power reduces annual U.S. economic growth by 0.20 percentage points and welfare by 11% through depressed R&D employment and misallocation.
Type
Publication
Revise & Resubmit, Econometrica
