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| Carlos Casacuberta and Nestor Gandelman |
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| ''On the use of the factor share approach to measure labor market power'' |
| ( 2025, Vol. 0 No.0 ) |
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| The production approach to market power estimation requires accurate
measures of output-input elasticities. This note shows that when there is
employer or employee market power in labor markets, the cost share
approach cannot identify the output-labor elasticity needed to estimate the
labor market power indicator. A naïve application of this method biases the
labor market power indicator towards perfect competition. Therefore,
researchers should implement alternative estimation strategies, as the
econometric estimation of the production function. |
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| Keywords: market power; production function estimation; cost share approach |
JEL: L1 - Market Structure, Firm Strategy, and Market Performance: General
J3 - Wages, Compensation, and Labor Costs: General |
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| Manuscript Received : Feb 24 2025 | | Manuscript Accepted : Oct 16 2025 |
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