We quantify the importance of imperfect competition in the US labor market by estimating the size of labor market rents earned by American firms and workers. We construct a matched employer-employee panel dataset by combining the universe of US business and worker tax records for the period 2001–2015. Using this panel data, we identify and estimate an equilibrium model of the labor market with two-sided heterogeneity where workers view firms as imperfect substitutes because of heterogeneous preferences over nonwage job characteristics. The model allows us to draw inference about imperfect competition, worker sorting, compensating differentials, and rent sharing.

Two key questions in thinking about the size and growth of the disability insurance program are to what extent it discourages work, and how valuable the insurance is to individuals and families. These questions motivate our paper. We begin by describing the earnings, disposable income, and consumption of awarded and rejected DI applicants, before and after the disability onset and the allowance decision. Next, we discuss how these descriptive results can be interpreted through the lens of alternative empirical approaches. Our analysis uses a Norwegian population panel data set with detailed information about every individual and household.

Using a local randomized experiment that arises from a sharp discontinuity in Disability Insurance (DI) policy in Norway, we provide transparent and credible identification of how financial incentives induce DI recipients to return to work. We find that many DI recipients have considerable capacity to work that can be effectively induced by providing financial work incentives. We further show that providing work incentives to DI recipients may both increase their disposable income and reduce program costs. Our findings also suggest that targeted policies may be the most effective in encouraging DI recipients to return to work.

We quantify the firm responses and real wage effects of foreign demand shocks. We use Belgian microdata to construct firm-specific measures of demand shocks, which capture that firms pass on foreign demand shocks to domestic suppliers. Our estimates of firm responses to these shocks suggest that firms face upward-sloping labor supply curves and have sizable fixed labor costs. We specify a general equilibrium model with these features to quantify the aggregate effects of simulated tariff shocks on wages. We find that ignoring fixed labor costs substantially underestimates aggregate effects on wages, whereas incorporating upward-sloping labor supply appears less consequential.

Empirical researchers often combine multiple instrumental variables (IVs) for a single treatment using two-stage least squares (2SLS). When treatment effects are heterogeneous, a common justification for including multiple IVs is that the 2SLS estimand can be given a causal interpretation as a positively weighted average of local average treatment effects (LATEs). This justification requires the well-known monotonicity condition. However, we show that with more than one instrument, this condition can only be satisfied if choice behavior is effectively homogeneous. Based on this finding, we consider the use of multiple IVs under a weaker, partial monotonicity condition. We characterize empirically verifiable sufficient and necessary conditions for the 2SLS estimand to be a positively weighted average of LATEs under partial monotonicity. We apply these results to an empirical analysis of the returns to college with multiple instruments. We show that the standard monotonicity condition is at odds with the data. Nevertheless, our empirical checks reveal that the 2SLS estimate retains a causal interpretation as a positively weighted average of the effects of college attendance among complier groups.

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).

There is no evaluation of the consequences of Disability Insurance (DI) receipt that captures the effects on households’ net income and consumption expenditure, family labor supply, or benefits from other programs. Combining detailed register data from Norway with an instrumental variables approach based on random assignment to appellant judges, we comprehensively assess how DI receipt affects these understudied outcomes. To consider the welfare implications of the findings from this instrumental variables approach, we estimate a dynamic model of household behavior that translates employment, reapplication, and savings decisions into revealed preferences for leisure and consumption. The model-based results suggest that on average, the willingness to pay for DI receipt is positive and sizable. Because spousal labor supply strongly buffers the household income and consumption effects of DI allowances, the estimated willingness to pay for DI receipt is smaller for married than single applicants.

The influence of peers could play an important role in the take up of social programs. However, estimating peer effects has proven challenging given the problems of reflection, correlated unobservables, and endogenous group membership. We overcome these identification issues in the context of paid paternity leave in Norway using a regression discontinuity design. We find strong evidence for substantial peer effects of program participation in both workplace and family networks. Coworkers and brothers are 11 and 15 percentage points, respectively, more likely to take paternity leave if their peer was exogenously induced to take up leave. The most likely mechanism is information transmission about the costs and benefits of taking paternity leave, including increased knowledge of how an employer will react. The estimated peer effect snowballs over time, as the first peer interacts with a second peer, the second peer interacts with a third peer, and so on. This leads to long-run participation rates which are substantially higher than would otherwise be expected.