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Market Power and Wage Inequality

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  • Deb, Shubhdeep
  • Eeckhout, Jan
  • Patel, Asseem
  • Warren, Lawrence

Abstract

We propose a theory of how market power affects wage inequality. We ask how goods and labor market power jointly affect the level of wages, the Skill Premium, and wage inequality. We then use detailed microdata from the US Census between 1997 and 2016 to estimate the parameters of labor supply, technology and the market structure. We find that a less competitive market structure lowers the wage level, contributes 7% to the rise in the Skill Premium and accounts for half of the increase in between-establishment wage variance.

Suggested Citation

  • Deb, Shubhdeep & Eeckhout, Jan & Patel, Asseem & Warren, Lawrence, 2022. "Market Power and Wage Inequality," CEPR Discussion Papers 17569, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17569
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    More about this item

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D3 - Microeconomics - - Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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