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

Kory Kroft, Yao Luo, Magne Mogstad () and Bradley Setzler

Working Papers from University of Toronto, Department of Economics

Abstract: We quantify the importance of imperfect competition in the US construction industry by estimating the size of rents earned by American firms and workers. To obtain a comprehensive measure of the total rents and to understand its sources, we take into account that rents may arise due to markdown of wages in the labor market, or markup of prices in the product market, or both. Our analyses combine the universe of US business and worker tax records with newly collected records from US procurement auctions. We use this data to identify and estimate a model where construction firms compete with one another for projects in the product market and for workers in the labor market. The firms may participate both in the private market and in government projects procured through auctions. We find evidence of considerable wage- and price-setting power. This imperfect competition creates sizable rents, three-fourths of which is captured by the firms. The incentives of firms to mark down wages and reduce employment due to wage-setting power are attenuated by their price-setting power in the product market.

Keywords: imperfect competition; monopsony; market power; rents; rent sharing; auction; procurement (search for similar items in EconPapers)
JEL-codes: D44 J31 J42 L11 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2021-05-07
New Economics Papers: this item is included in nep-com and nep-lma
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Related works:
Working Paper: Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry (2020) Downloads
Working Paper: Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry (2020) Downloads
Working Paper: Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry (2020) Downloads
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