Claudio Luccioletti (Bank of Italy)
Sophie Mathes and John Morehouse
Spatial models often assume competitive labor markets. However, place-based policies may interact with local monopsony. We build a spatial model with labor market power and estimate it using four decades of U.S. data. We estimate falling wage markdowns, driven by increased job-switching across industries and growth in the number of local firms. Raising housing supply elasticities in large productive locations increases welfare but has little impact on monopsony, producing aggregate outcomes similar to a competitive model. In contrast, migration subsidies reduce markdowns by increasing labor supply elasticities, yielding different welfare effects from the standard model without monopsony.