Michael Rubens, UCLA

Labor-Market Power, Deadweight Loss, and Technology Adoption

Abstract

Buyer power can induce deadweight loss, but it can also incentivize buyers’ technology adoption by reducing investment holdup. In this paper, I construct a structural model that incorporates these two opposing forces, and use it to quantify the net welfare effects of employers’ market power over their workers. Applying the model to the late-19th-century Illinois coal mining industry, a textbook monopsony example that experienced a large technological shock due to the invention of mechanical cutting  machines, I find that an increase in employer power would have induced substantially higher mechanization rates. Assuming exogenous capital investment leads to overestimating the consumer and labor welfare losses from employer power by 13% and 7%.

Michael Rubens is an Assistant Professor of Economics at UCLA. He works in the fields of industrial organization and labor economics. His research agenda aims to increase the understanding of the drivers and consequences of market power in vertically related industries and on factor markets.

You can read more about Michael Rubens here

CEBI contact: Franziska Valder