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Is There Monopsony In The Labor Market? Evidence From A Natural Experiment

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Executive Summary

A variety of recent theoretical and empirical advances have renewed interest in monopsonistic models of the labor market. However, there is little direct empirical support for these models, even in labor markets that are textbook examples of monopsony. The authors use an exogenous change in wages at Veterans Affairs hospitals as a natural experiment to investigate the extent of monopsony in the nurse labor market. In contrast to much of the prior literature, they estimate that labor supply to individual hospitals is quite inelastic, with short-run elasticity around 0.1. They also find that non-VA hospitals responded to the VA wage change by changing their own wages.

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