Discussion paper

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

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 destinations 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. This result is driven by plants that account for a large share of local employment, consistent with an oligopsonistic labor market model.

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Citation

Amodio, F and N de Roux (eds) (2021), “DP16180 Labor Market Power in Developing Countries: Evidence from Colombian Plants”, CEPR Press Discussion Paper No. 16180. https://cepr.org/publications/dp16180