Imperfect Competition, Compensating Differentials, and Rent Sharing in the US Labor Market
Thibaut Lamadon, Magne Mogstad, Bradley Setzler
Summary
The authors build and estimate an equilibrium model of imperfect competition in the US labor market using linked employer-employee administrative data, combining firm-level productivity shocks with worker mobility. They quantify the degree of employer wage-setting power (monopsony), how firms share rents with workers, and the role of compensating differentials for non-wage amenities. They find that firms have substantial market power and pass through only part of productivity gains to wages, while amenities matter for worker sorting.
Key findings
- US employers possess meaningful wage-setting power, so pay falls below workers' marginal product (monopsony).
- Firms share rents with workers, passing through a limited share of productivity/value-added shocks into wages.
- Compensating differentials for workplace amenities are an important determinant of where workers choose to work.
Subjects & keywords
Cite this paper
Thibaut Lamadon, Magne Mogstad, & Bradley Setzler (2022). Imperfect Competition, Compensating Differentials, and Rent Sharing in the US Labor Market. American Economic Review. https://doi.org/10.1257/aer.20190790
@article{lamadon2022imperfect,
author = {Thibaut Lamadon and Magne Mogstad and Bradley Setzler},
title = {Imperfect Competition, Compensating Differentials, and Rent Sharing in the US Labor Market},
journal = {American Economic Review},
year = {2022},
doi = {10.1257/aer.20190790},
url = {https://doi.org/10.1257/aer.20190790}
}