An Empirical Framework For Matching With Imperfect Competition

This paper builds, identifies and estimates a model of the labor market that features strategic interactions in wage setting and two-sided heterogeneity in order to shed light on the sources of wage inequality. We provide a tractable characterization of the model equilibrium and demonstrate its exis...

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Bibliographic Details
Published in:NBER Working Paper Series 2024-05
Main Authors: Chan, Mons, Kroft, Kory, Mattana, Elena, Mourifié, Ismael
Format: Article
Language:English
Online Access:Get full text
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Summary:This paper builds, identifies and estimates a model of the labor market that features strategic interactions in wage setting and two-sided heterogeneity in order to shed light on the sources of wage inequality. We provide a tractable characterization of the model equilibrium and demonstrate its existence and uniqueness. This characterization of the equilibrium allows us to derive a rich set of comparative statics and to gauge the relative contributions of worker skill, preference for amenities and strategic interactions to equilibrium wage inequality. Using instrumental variables, we establish identification of labor demand and supply parameters and estimate them using matched employer-employee data from Denmark. Using our estimated structural model, we perform a series of counterfactual analyses in order to provide a quantitative evaluation of the main sources of wage inequality in Denmark.
ISSN:0898-2937
DOI:10.3386/w32493