An Empirical Framework for Matching with Imperfect Competition


This paper considers a static, many-to-one matching model of the labor market. We assume that firms operate in an oligopsony labor market and allow for strategic interactions in wage setting. Firms face inelastic labor supply curves and set an endogenous firm-specific markdown below marginal product. We provide a tractable characterization of the equilibrium and demonstrate existence and uniqueness. This characterization of the model equilibrium allows us to derive a rich set of comparative statics and then to gauge the relative contributions of worker skill, preference for amenities and strategic interaction on equilibrium wage inequality. We establish identification of labor demand and supply structural parameters and estimate them using matched employer-employee data on the population of Danish workers.