Market Structure and Employment Instability

Abstract

QINCE the 1930s an unresolved controversy among economists has centered around the connection between market power and fluctuations. After presenting some theoretical arguments relating to this controversy and briefly examining a few previous studies, this paper will address the empirical question of the link between market structure and the stability of employment. By controlling for differences in worker characteristics, the effects of industry variables on instability will be revealed. A few secondary, yet interesting, aspects of this study deserve mention at this point. Data on individual workers, from the University of Michigan's Panel Study of Income Dynamics, will be combined with industry data. Not only will these individual data control for worker differences across industries; they will also permit an examination of the importance of personal characteristics in determining patterns of employment. Another aspect, to be discussed later, is the ambiguity in the meaning of employment instability, particularly on the micro level. Instead of arbitrarily picking one empirical measure, three alternative measures are proposed and used in the empirical work; this allows for a more complete analysis of the effects of both personal and industry variables on the individual's experience. Section II presents a discussion of possible theoretical links between market power and employment. A few previous empirical studies are described in section III. The empirical model used in this study will be described in section IV, including a description of the data sources and variable definitions. The results are presented in section V, and some concluding remarks are given in section VI.