Imperfect Competition, Compensating Differentials, and Rent Sharing in the U.S. Labor Market
Abstract
We quantify the importance of imperfect competition in the U.S. labor market by estimating the size of labor market rents earned by American firms and workers. We construct a matched employer-employee panel data set by combining the universe of U.S. business and worker tax records for the period 2001–2015. Using this panel data, we identify and estimate an equilibrium model of the labor market with two-sided heterogeneity where workers view forms as imperfect substitutes because of heterogeneous preferences over non-wage job characteristics. The model allows us to draw inference about imperfect competition, worker sorting, compensating differentials, and rent sharing.
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