DP16180 Labor Market Power in Developing Countries: Evidence from Colombian Plants

Author(s): Francesco Amodio, Nicolas De Roux
Publication Date: May 2021
Keyword(s): Colombia, export, labor market power
JEL(s): J42, L10, O14, O54
Programme Areas: Labour Economics, Industrial Organization, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16180

How much can employers in low and middle-income countries suppress wages below marginal productivity? Using plant and customs data from Colombia, we exploit pre-determined variation across plants in sales export destination combined with variation in exchange rates to generate plant-specific shocks to marginal revenue productivity and labor demand. We estimate a firm-level labor supply elasticity of around 2.5, implying that workers produce about 40% more than their wage level. Our results indicate that Colombian and US manufacturers have a comparable degree of labor market power.