Market Power and Wage Inequality

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Abstract/Contents

Abstract: We investigate how market power affects wage inequality. Market power is driven by the market structure in the goods and the labor market as well as in the distribution of firm-specific technology. We ask how these contribute to the rise in the Skill Premium, the premium of the average college wage relative over the average non-college wage and within and between-firm inequality. We estimate the firm-specific technology as well as the market structure and find that the increase in market power contributes thirteen percent to the rise in the skill premium. We also find that it explains approximately half of the rise in between-firm wage inequality in the US. Market structure also accounts for the rise in the markup, as well as the decline in equilibrium wages and welfare.

Type of resource	text
Date created	August 30, 2021

DOI	https://doi.org/10.25740/gq779gs0936
Location	https://purl.stanford.edu/gq779gs0936

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License: This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).

Preferred citation: Deb, S., Eeckhout, J., Patel, A., and Warren, L. (2022). Market Power and Wage Inequality. Stanford Digital Repository. Available at https://purl.stanford.edu/gq779gs0936

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