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

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  • Kory Kroft
  • Yao Luo
  • Magne Mogstad
  • Bradley Setzler

Abstract

We develop, identify, and estimate a model of imperfect competition in both labor and product markets. Our context is the US construction industry, where firms compete for workers, private market projects, and government procurements. Our empirical approach leverages bidding data from procurement auctions linked to employer-employee tax records. We find imperfect competition in both markets generates a total wage markdown of more than 30 percent and a total price markup of around 45 percent. By contrast, if one erroneously assumed a perfectly competitive product (labor) market, then one would conclude wages (prices) are marked down (up) by only 20 percent (16 percent).

Suggested Citation

  • Kory Kroft & Yao Luo & Magne Mogstad & Bradley Setzler, 2025. "Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry," American Economic Review, American Economic Association, vol. 115(9), pages 2926-2969, September.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:9:p:2926-69
    DOI: 10.1257/aer.20220577
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction

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