Empirical tools and competition analysis: Past progress and current problems

Pakes, Ariél

doi:10.1016/j.ijindorg.2016.04.010

Cited by 18 publications

(9 citation statements)

References 51 publications

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“…Hence, rather than offer each worker her reservation wage (e.g., as in Postel-Vinay and Robin, 2002), firms post a common wage for each skill group that is marked down from marginal product in inverse proportion to their elasticity of labor supply to the firm. This condition provides a natural analogue to the equilibrium markups of price over marginal cost found in workhorse models of differentiated product demand and pricing (Berry, 1994;Berry, Levinsohn, and Pakes, 1995;Pakes, 2016).…”

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confidence: 94%

“…The pervasive influence of this perspective is evident in major reviews of the wage inequality literature (Katz and Autor, 1999;Goldin and Katz, 2009;Acemoglu and Autor, 2011), which focus almost exclusively on the role of market-level skill prices in driving inequality trends. 1 This view stands in stark contrast to the Industrial Organization literature, which typically models markets as imperfectly competitive (Tirole, 1988;Pakes, 2016). Though economists seem to agree that part of the variation in the prices of cars and breakfast cereal is due to factors other than marginal cost, the notion that wages differ substantially among equally skilled workers remains highly controversial.…”

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confidence: 99%

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Firms and Labor Market Inequality: Evidence and Some Theory

Card¹,

Cardoso²,

Heining³

et al. 2016

216

394

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We review the literature on firm-level drivers of labor market inequality. There is strong evidence from a variety of fields that standard measures of productivity -like output per worker or total factor productivity -vary substantially across firms, even within narrowlydefined industries. Several recent studies note that rising trends in the dispersion of productivity across firms mirror the trends in the wage inequality across workers. Two distinct literatures have searched for a more direct link between these two phenomena. The first examines how wages are affected by differences in employer productivity. Studies that focus on firm-specific productivity shocks and control for the non-random sorting of workers to more and less productive firms typically find that a 10% increase in value-added per worker leads to somewhere between a 0.5% and 1.5% increase in wages. A second literature focuses on firm-specific wage premiums, using the wage outcomes of job changers. This literature also concludes that firm pay setting is important for wage inequality, with many studies finding that firm wage effects contribute approximately 20% of the overall variance of wages. To interpret these findings, we develop a model where workplace environments are viewed as imperfect substitutes by workers, and firms set wages with some degree of market power. We show that simple versions of this model can readily match the stylized empirical findings in the literature regarding rent-sharing elasticities and the structure of firm-specific pay premiums. (Tirole, 1988;Pakes, 2016). Though economists seem to agree that part of the variation in the prices of cars and breakfast cereal is due to factors other than marginal cost, the possibility that wages reect anything other than skill remains highly controversial. Terms of use: Documents inThe growing availability of matched employer-employee datasets has created new opportunities to disentangle the eects of worker and rm heterogeneity on wage inequality. Nevertheless, many of the fundamental issues that economists have long debated about dierences in the characteristics of the workers at dierent rms, and the nature of the jobs at dierent workplaces, carry over to these new datasets. This reviewsummarizes what has been learned so far from these new datasets about the importance of rms in wagesetting, and what challenges remain.

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confidence: 94%

mentioning

confidence: 99%

Firms and Labor Market Inequality: Evidence and Some Theory

Card¹,

Cardoso²,

Heining³

et al. 2016

216

394

View full text Add to dashboard Cite

show abstract

“…However, because we allow for continuous heterogeneity in worker preferences, firms are not indifferent between wage strategies and will mark wages down below marginal product according to the usual monopsonistic pricing rule. Our assumption that firms are ignorant about worker reservation values lies in contrast to the model of Postel-Vinay and Robin (2002) who assume that firms observe a worker's outside option and offer wages that make them indifferent about accepting jobs.…”

Section: Imperfectly Competitive Labor Markets and Inequalitymentioning

confidence: 99%

“…Another interesting extension would be to allow incumbent workers to face switching costs that lead firms to price discriminate against them. This could lead to offer matching behavior as in Postel-Vinay and Robin (2002) and to new predictions about recruitment and retention policies.…”

Section: Relationship To Other Models and Open Questionsmentioning

confidence: 99%

“…We presume, as in Robinson's analysis and much of the Industrial Organization literature, that the firm cannot price discriminate based upon a worker's idiosyncratic preference for the firm's work environment. Hence, rather than offer each worker her reservation wage (e.g., as in Postel-Vinay and Robin, 2002), firms post a common wage for each skill group that is marked down from marginal product in inverse proportion to their elasticity of labor supply to the firm. This condition provides a natural analogue to the equilibrium markups of price over marginal cost found in workhorse models of differentiated product demand and pricing (Berry, 1994;Berry, Levinsohn, and Pakes, 1995;Pakes, 2016).…”

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confidence: 99%

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