Stansbury and Summers respond on worker bargaining power, and more on monopsony

Both to my earlier points and to some other discussions, here is the link.  Here is one excerpt related to a point I had not understood in the paper proper:

5. If corporate profits are so high, how is this consistent with the persistently low demand postulated by Summers’ “secular stagnation” hypothesis?

Secular stagnation as we think of it is the product of a rising gap between the desire to save and the desire to invest (which, in an IS-LM type framework, would push down the neutral real interest rate). Falling worker power redistributes income from lower and middle-income people to the rich. The rich have a higher propensity to save. Thus, falling worker power increases the desire to save relative to the desire to invest. Rising inequality has been posited by several authors as a contributor to the declining neutral real interest rate (see e.g. Smith and Rachel 2015). Under this view, secular stagnation is exemplified by low private return to capital investment – but, in a noncompetitive world, this may or may not be the same thing as an abnormally low profit rate or capital share.

There is much more at the link, and on other issues as well.  I would say I found the whole paper and discussion very clarifying.

While we are on the topic, here is a new paper by Stansbury (with Schubert and Taska) on monopsony.  I haven’t read through it, but just based on the description of what they did it seems to get closer to finding the truth than the other works I have seen in this area:

Abstract:  In imperfectly competitive labor markets, the value of workers’ outside option matters for their wage. But which jobs comprise workers’ outside option, and to what extent do they matter? We the effect of workers’ outside options on wages in the U.S, splitting outside options into two components: within-occupation options, proxied by employer concentration, and outside-occupation options, identified using new occupational mobility data. Using a new instrument for employer concentration, based on differential local exposure to national firm-level trends, we find that moving from the 75th to the 95th percentile of employer concentration (across workers) reduces wages by 5%. Differential employer concentration can explain 21% of the interquartile wage variation within a given occupation across cities. In addition, we use a shift-share instrument to identify the wage effect of local outside-occupation options: differential availability of outside-occupation options can explain a further 13% of within-occupation wage variation across cities. Moreover, the two interact:  the effect of concentration on wages is three times as high for occupations with the lowest outward mobility as for those with the highest. Our results imply that (1) employer concentration matters for wages for a large minority of workers, (2) wages are relatively sensitive to the outside option value of moving to other local jobs, and (3) failure to consider the role of outside-occupation options in the concentration-wage relationship leads to bias and obscures important heterogeneity. Interpreted through the lens of a Nash bargaining model, our results imply that a $1 increase in the value of outside options leads to $0.24-$0.37 higher wages.

It also would be interesting to see what these parameter values imply for the effects of minimum wage hikes.


Have economists still not figured out that "savings = investment" is (1) an accounting identity, hence definitely *not* mediated by interest rates, since it's impossible for the two quantities to diverge, and also (2) based on a completely nonsensical definition of "savings" that renders it meaningless in the first place?

yes they have figured out the difference between ex ante and ex post values. it's not clear whether you have, however


How is this relevant to the fact that IS-LM is the insane fever dream of a solitary Keynes acolyte, and has no grounding in logic nor any notable connection to reality?

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Saving is a flow variable, savings is a stock variable. So saving = investment.

Other than that, you are 100% correct. This fact that saving never diverges from investment was one of Keynes' key insights.

"Thus, falling worker power increases the desire to save relative to the desire to invest." From Cowen's earlier post: "you might expect investment to be robust, but measured investment clocks in as mediocre". Investment is the key, the key to productivity and wage growth and key to overall economic growth. Why would Cowen object to Stansbury's and Summers's thesis: they agree on the central point. Now, they might disagree on the particulars as to why investment has been "mediocre", but adding ever greater resources to the investor class doesn't strike me as the solution to the dilemma.

Not sure I understand the analysis. In today's world where complexity and specialization are the key features and employees are less interchangeable than in the past, measurements using broad categories of skill level will produce misleading results. In today's world, a "welder" is not the same as a "welder" that will be doing e-beam welding of TZM alloys.

Occupation categories are not homogeneous or even close to being homogeneous enough for such an analysis once you get past the hamburger flipping or box/part moving jobs that are all being automated. Outside of academia, where jobs are about the same as they were a half-century ago, jobs have become specialized in niches where the number of possible slots per area has gone down and that impact mobility. Even just being a field mechanic/technician who keeps equipment working requires special licenses, training, and approvals for almost all different functions.

With these rapid changes, is any rational and valid analysis possible? Are we just seeing analysis that gives the politically correct results for the times?

"Outside of academia, ...."

Well it sounds like all jobs are becoming more specialized and niche position, much like jobs in academia already were. So less a contrast than a convergence.

Also, this seems like an inevitable result of globalism and automation. If the basic tasks can be outsourced or automated, the remaining workers are the ones doing the tasks that couldn't be outsourced or automated.

So, are we to believe that the United States consists of a series of company towns? And that the supply of specific skills does not adapt over time? And that we don't have automobiles?

This is a stretch. Short-run at best.

Nailed it on #5! Glad to see my graduate school macro instincts haven't failed me!

Is there actually evidence that non financial c corps are actually more profitable now though? I thought most of the evidence pointed the other way, at least relative to gdp. I suspect the issue is much more between different classes of workers than between labor and capital.

Is the claim about the rich being more likely to save than invest an empirical claim, some assumption or a theoretical claim in the model.


This is all multiple generations old claimed nonsense. Disproven for the long run many times.

'We find first, like previous researchers, a strong positive relationship between current income and saving rates across all income groups, including the very highest income categories. Second, and more important, we continue to find a positive correlation when we use proxies for permanent income such as education, lagged and future earnings, the value of vehicles purchased, and food consumption. Estimated saving rates range from less than 5 percent for the bottom quintile of the income distribution to more than 40 percent of income for the top 5 percent. The positive relationship is more pronounced when we include imputed Social Security saving and pension contributions. Even among the elderly, saving rates may rise with income. In sum, our results suggest strongly that the rich do save more, whether the rich are defined to be the top 20 percent of the income distribution (following the Department of Treasury -- Pines, 1997), or the top 1 percent. And, more broadly, we find that saving rates increase across the entire income distribution.'
That's from the Federal Reserve

I buy a Merc; I save more! I eat more; I save more!

Gotta love those proxies for permanent income :-)

Monopsony markets have wealth concentration by definition.

The “wages” paid do not appear take into account changes in the taxes and employment-related rents extracted unions and by the legal guild. It is well established empirically that the incidence of corporate income taxes falls upon workers in the form of reduced wages. Similarly payroll, disability, unemployment, and other direct taxes further reduce actual income to workers. Other taxes that reduce wages include the costs of compliance with union contracts as well as rents extracted by the legal guild in the form of employment related litigation. When one considers the rapid increase in these latter costs of employment, the “workers’ share” actually may have increased.

Is going to be killed by gilet jaune - brown & non-unionised. Unless he seeks the help of innovation.

I am anyway going to get the Nobel. Who cares about Piketty?

I just had a cardiac arrest drinking Nikka. Sanifised!

Well-deserved or as they say in French - bien mérité. Such a catholic country as Jaffer-LOT would transpose on some other one - replace catholic with hindu. He would meanwhile forget his own 'laïcité' while siding with the king.

Muslims in France - are we even them?

I thought the big win for rich capital owners in mergers was the reduced # of VPs relative to the market share increase, as well as reduced customer competition.

This says the reduced talent competition allows less choice, and thus less wages+benefits, to the employees.

The tax code should be supporting more small competitors for better wage bargaining positioning by the wage earners.

I looked through the paper, their method was good.
They find the relative tangent of indifference when outside jobs are matched to inside jobs. They get the relative turn over in one segment relative to the other.
The answer is the definition of monopsony. By assuming perfect competition they have orthogonalized about a single axis. found a vertical to both curves. They tell you the observable labor price that distinguishing between tow monopsonies.

Then the conclusions. The conclusions are about one thing, value chains are longer and global. Technology allows longer chains, global trade uses the new liquidity, and there is slim space for unions with that much specialization.

We dunno much more since covid hit and all our natural experiments got fouled.

The mechanism of redistribution of income upward to those with higher propensities to save would lower real interest rates by increasing investment. Is that what people think has happened?

I think investors have (rightly) become less confident that the Fed will maintain stable NGDP growth. It failed miserably in 2008-16 and is failing again.

I’ve watched Summers for a while and he seems for some time now to have (hopefully) anticipated a “awakening” trend (hard to see much of the trend from here) that understands it’s all about bargaining power — not to mention the concomitant political power that goes with labor organization. Kevin Drum at Mother Jones has got the idea too. (I start every day with Kevin Drum — )

Here is SEIU’s Andrew Strom’s take which he posted on On Labor couple of years ago — and went away and never did anything to promote. This is the beginning and the end; the alpha and the omega of union rebuilding in America — or could be if anybody pushed it. Union density could be rebuilt to even unprecedented levels overnight. Advocating regularly scheduled union cert/recert/decert elections at every private workplace would make Democrats the automatic winner in battleground states.

Why do you think those states strayed? It was because Obama and Hillary had no idea what they need. Voters had no idea what they SPECIFICALLY needed either — they had be deunionized so thoroughly over such a long period (frogs in the slowly boiling pot).

In 1988 Jesse Jackson took the Democratic primary in Michigan with 54% against Dukakis and Gephardt. Obama beat Wall Street Romney and red-white-and-blue McCain in Wisconsin, Ohio and Michigan.

Now that we know that voters want what Strom proposed, how about taking the easy path to victory in November — and the path to permanent (German style labor union led) prosperity for the foreseeable future. It’s all right here — again:

So if rich people are saving more, where is the evidence that their saving is increasing, and what methods are they using to “save”?

They address the direct effects of housing costs, but it seems to me there is a deeper point, which pulls together both Rognlie and Stansbury and Summers, which is that a lack of urban housing supply undermines competitive markets because it makes it harder for labor to migrate and also it raises the costs of upstarts. There is a reason y-combinator is in Silicon Valley but there isn't an equivalent in Omaha. The geographic capture of the leading edge of the tech sector is like a 50% tax on tech entrepreneurs.

As Rognlie found, these factors mostly caused a transfer from labor to housing income, but it seems reasonable that they could also increase income to capital relative to labor in a way that might roughly be estimated by something that looks like decreased worker bargaining power.

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