Does Labor Market Concentration Decrease Wages? Evidence from a Retail Pharmacy Merger (New version coming soon!)
"Increasing labor market concentration is a topic of recent policy concern. However, there is lack of direct evidence showing how labor market power affects workers. In this paper, I study the effects of a large merger in the retail pharmacy sector in Brazil on workers’ wages. I use a matched employer-employee dataset from 2007 to 2018 that allows me to follow workers and establishments over time. The effect of market power is estimated using a difference in difference (DiD) approach that compares the labor market effects of the merger in regions where firms overlapped and concentration increased relative to those in which it didn’t. I implement a DiD estimator that includes establishment and worker fixed effects to account for composition effects. I find that increasing market power lowers wages, but less than previously thought. There are two reasons for that. First, failing to account for composition effects biases the estimates of the effects of concentration. Second, the negative labor market effects of a merger are offset by competitors’ responses. The results show a great deal of heterogeneity across occupations and worker tenure, highlighting the benefits of studying a particular industry."
Overview: Recent studies show that the college premium has flattened in the last two decades in many Latin American countries. At the same time, there was a great expansion in the number of college graduates and college institutions in the region. This paper shows that the college premium in Brazil has not flattened, instead it is increasing. We do this by matching novel data with the names of around one million college graduates from 42 schools and 20 different cohorts with the Brazilian employer-employee matched dataset. First, the increase in the supply of college workers came from newer, lower ranked, and lower wage-premium universities. Second, the college premium has increased for workers from our constant sample of universities. Combining these two facts, we infer that there are more workers with a college degree but lower quality degrees, reflecting lower average wages. The findings in this paper are relevant for any study that uses college premium proxies in countries, or periods, with increasing access to lower-quality colleges. More precisely, we are concerned that the market equilibrium effects of college access have been overestimated by not accounting for these changes in quality.
Work in Progress:
Defining Labor Markets from Worker Flows (new version coming soon!)
Overview: We use worker flows to define better approximations to labor markets. Labor market definitions are important to predict the effects of mergers, labor market policies (like minimum wages), migration, trade shocks, and other events on labor market outcomes. Researchers have typically relied on ad-hoc approximations such as geographic boundaries, occupational codes, or industry codes at differing levels of granularity. For any given job, it is not clear which definition is most appropriate. For example, the relevant market for airline pilots might be a detailed occupation-industry cell at the national level. On the other hand, the relevant market for pharmacy cashiers might consist of many occupations and industries but only within a narrow geographic area. The paper follows three steps. First, we use modularity maximization approaches from the network literature to identify labor markets. We use worker flows across occupations, industries, and geographies to define N markets. The defined markets maximize the modularity measure, i.e., the measure of the density of links within markets. Second, we describe and evaluate the resulting networks. For example, we show that labor markets often cross one-digit occupation codes. We are currently working on the third step, in which we validate the labor market approximation by applying the definitions to empirical frameworks.
Effectiveness and Consequences of Occupation and Industry-specific Minimum Wages (with Joaquin Serrano)
Overview: We study the effects of minimum wages on employment levels and on the wage distribution. Most empirical studies in the minimum wage literature use county-level variation and ignore that different firms will respond to minimum wages in different ways. In theory, the employment response of each firm will depend on three conditions: (i) how binding is the minimum wage; (ii) how competitive are the labor markets that the firm participates; and (iii) how substitutable are different types of labor within each firm. In this paper, we evaluate the effects of occupation and industry-specific minimum wages in Brazil on employment and wages. Using an employer-employee matched dataset (RAIS) we estimate a reduced form equation that incorporates a measure of bindingness and a measure of labor market concentration. We then use the variation in minimum wages across occupations to verify the role of substitution in determining the minimum wage effects. Preliminary results show the importance of controlling for the bindingness of the minimum wages when determining its effects on wages and employment. Furthermore, zero and positive employment effects of the minimum wage are associated with some measures of labor market concentration.
Shocks in High School Networks: Effects on Subsequent Labor Market Success (with Isis Lira and Ursula Mello)
Censo dos Barraqueiros das Praias de Ipanema e Leblon (projeto com os professores e alunos de Introdução a Economia Aplicada, 2023.1)
Returns to Experience across Tasks: Evidence from Brazil, with Gustavo Gonzaga. 2019. Applied Economic Letters. DOI: 10.1080/13504851.2019.1593927
Modernização da Agricultura em Moçambique: determinantes da renda agrícola, with Carlos E. Guanziroli. 2015. Revista de Economia e Sociologia Rural, V53, S1. DOI:10.1590/1234-56781806-94790053s01009