Imperfect Competition and Rent Sharing in the U.S. Labor Market

Econometrics and Empirical Economics/Development, Labor and Public Policy Joint Seminar

Magne Mogstad (University of Chicago)

December 11, 2018, 15:30–17:00


Room MS 001

Development, Labor and Public Policy Seminar


The goal of this paper is to quantify the importance of imperfect competition in the U.S. labor market by estimating the size of rents earned by American employers and workers from ongoing employment relationships. To this end, we develop, identify and estimate an equilibrium model of the U.S. labor market with two-sided heterogeneity where workers view firms as imperfect substitutes. To take this model to the data, we construct matched employer-employee data by combining the universe of U.S. business and worker tax records for the period 2001-2015. The model matches important features of the U.S. labor market. We use the estimated model to i) quantify the size of rents earned by U.S. employers and workers, ii) show the relevance of imperfect competition for inequality and tax policy, and iii) offer a unifying explanation for evidence of firm wage premiums, worker sorting, and pass-through of firm and market shocks