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Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry

Author

Listed:
  • Kory Kroft
  • Yao Luo
  • Magne Mogstad
  • Bradley Setzler
Abstract
Existing work on imperfect competition typically focuses on either the labor market or the product market in isolation. In contrast, we analyze imperfect competition in both markets jointly, showing theoretically and empirically that focusing on one market in isolation may result in a limited or misleading picture of the degree and impacts of market power. Our empirical setting is the US construction industry. We develop, identify and estimate a model where construction firms imperfectly compete with one another for workers in the labor market and for projects in both the private market and the government market, where government projects are procured through auctions. Our analyses combine the universe of business and worker tax records with newly collected records from government procurement auctions. We use the estimated model to quantify the markdown of wages and the markup of prices, to show that the impacts of an increase in market power in one market are attenuated by the existence of market power in the other market, and to quantify the rents, rent-sharing, and incidence of procurements in the US construction industry.

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  • Kory Kroft & Yao Luo & Magne Mogstad & Bradley Setzler, 2020. "Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry," NBER Working Papers 27325, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27325
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    2. David Berger & Kyle Herkenhoff & Andreas R. Kostøl & Simon Mongey, 2024. "An Anatomy of Monopsony: Search Frictions, Amenities, and Bargaining in Concentrated Markets," NBER Macroeconomics Annual, University of Chicago Press, vol. 38(1), pages 1-47.
    3. Thibaut Lamadon & Magne Mogstad & Bradley Setzler, 2022. "Imperfect Competition, Compensating Differentials, and Rent Sharing in the US Labor Market," American Economic Review, American Economic Association, vol. 112(1), pages 169-212, January.
    4. Sezer, Ayse Hazal & Uras, Burak, 2024. "Firms and Unions," Other publications TiSEM 81a58c37-dd82-442d-aab1-b, Tilburg University, School of Economics and Management.
    5. Langella, Monica & Manning, Alan Patrick, 2021. "The measure of monopsony," LSE Research Online Documents on Economics 113925, London School of Economics and Political Science, LSE Library.
    6. David Berger & Kyle Herkenhoff & Simon Mongey, 2022. "Labor Market Power," American Economic Review, American Economic Association, vol. 112(4), pages 1147-1193, April.
    7. Munch, Jakob R. & Olney, William W., 2024. "Offshoring and the Decline of Unions," IZA Discussion Papers 17116, Institute of Labor Economics (IZA).
    8. Amodio, Francesco & Medina, Pamela & Morlacco, Monica, 2022. "Labor Market Power, Self-Employment, and Development," IZA Discussion Papers 15477, Institute of Labor Economics (IZA).
    9. Sezer, Ayse Hazal & Uras, Burak, 2024. "Firms and Unions," Discussion Paper 2024-006, Tilburg University, Center for Economic Research.
    10. Monica Langella & Alan Manning, 2021. "Marshall Lecture 2020: The Measure of Monopsony [Monopsony in the UK]," Journal of the European Economic Association, European Economic Association, vol. 19(6), pages 2929-2957.
    11. Dami'an Vergara, 2022. "Minimum Wages and Optimal Redistribution," Papers 2202.00839, arXiv.org, revised Dec 2022.
    12. Committee, Nobel Prize, 2021. "Answering causal questions using observational data," Nobel Prize in Economics documents 2021-2, Nobel Prize Committee.
    13. Alonso Alfaro Urena & Isabela Manelici & Jose P. Vasquez, 2021. "The Effects of Multinationals on Workers: Evidence from Costa Rican Microdata," Working Papers 285, Princeton University, Department of Economics, Center for Economic Policy Studies..
    14. Ihsaan Bassier & Arindrajit Dube & Suresh Naidu, 2020. "Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies," NBER Working Papers 27755, National Bureau of Economic Research, Inc.
    15. Lindner, Attila & Murakozy, Balazs & Reizer, Balazs & Schreiner, Ragnhild, 2022. "Firm-level Technological Change and Skill Demand," CEPR Discussion Papers 17421, C.E.P.R. Discussion Papers.
    16. Agnes Norris Keiller & Tim Obermeier & Andreas Teichgraeber & John Van Reenen, 2024. "An engine of (pay) growth? Productivity and wages in the UK auto industry," CEP Discussion Papers dp2015, Centre for Economic Performance, LSE.
    17. Peter Hull & Michal Kolesár & Christopher Walters, 2022. "Labor by design: contributions of David Card, Joshua Angrist, and Guido Imbens," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(3), pages 603-645, July.
    18. Schmieder, Johannes F., 2023. "Establishment age and wages," Journal of Econometrics, Elsevier, vol. 233(2), pages 424-442.
    19. Julian Alves & Jason Greenberg & Yaxin Guo & Ravija Harjai & Bruno Serra-Lorenzo & John Van Reenen, 2024. "Labour market power: New evidence on Non-Compete Agreements and the effects of M&A in the UK," CEP Discussion Papers dp1976, Centre for Economic Performance, LSE.
    20. Jack Fisher, 2024. "Monopsony Power in the Gig Economy," CESifo Working Paper Series 11444, CESifo.
    21. Amano-Patiño, N. & Aramburu, J. & Contractor, Z., 2022. "Is Affirmative Action in Employment Still Effective in the 21st Century?," Cambridge Working Papers in Economics 2262, Faculty of Economics, University of Cambridge.
    22. Quintero, Luis E. & Roberts, Mark, 2023. "Cities and productivity: Evidence from 16 Latin American and Caribbean countries," Journal of Urban Economics, Elsevier, vol. 136(C).

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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