Seminar in Macroeconomics - Anastasia Burya (University of Bern)

Wages in the U.S. are, on average, 30% lower than expected based on labor productivity, indicating significant deviations from perfect competition. Theoretical literature attributes wage markdowns to two sources: "classical" labor market power, which reduces employment and causes deadweight losses, and "search" labor market power, which may not affect employment or efficiency. To distinguish between these, we analyze heterogeneous responses of vacancies and wages to monetary policy shocks. Our findings show that "classical" labor market power alone cannot explain the data, while "search" labor market power drives the results. Firms with high labor market power experience amplified employment effects from monetary policy but no corresponding wage amplification. This explains the "wageless" recovery after the 2008 financial crisis and the flattening of the wage Phillips curve. Moreover, the prevalence of search labor market power suggests that wage markdowns alone are insufficient for assessing labor market efficiency.