Is There Monopsony in the Labor Market? Evidence From A Natural Experiment

Author
Keywords
Abstract

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. We 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, we estimate that labor supply to individual hospitals is quite inelastic, with short-run
elasticity around 0.1. We also find that non-VA hospitals responded to the VA wage change
by changing their own wages.

Year of Publication
2008
Number
545
Date Published
12/2008
Publication Language
eng
Citation Key
8341
URL
Working Papers