Market Power and Inequality in the Labor Market

Name of applicant

Elena Mattana


Associate Professor


Aarhus University


DKK 4,834,693



Type of grant

Semper Ardens: Accelerate


We study the importance of market power in the labor market to understand wage inequality: How do firms interact among each other to attract the “best” workers and/or pay lower wages? How are models of wage-setting affected by including sources of market power and/or labor market frictions? How does labor market connectivity affect wages?


It is important to understand the causes of wage dispersion to design policies that reach predefined goals in terms of inequality. A large literature focuses on some of these causes in isolation, mostly abstracting on how the interplay between sources of market power and the underlying structure of the labor market can have strong quantitative implications on wage dispersion.


We use theory and empirics. We develop labor market models that introduce much-needed complexity, but are also tractable. We show how the key parameters of these models can be estimated and do so using Danish registers. We use the estimated models to quantify the role of market power in wage-setting and wage inequality. Ultimately, we use the models to analyze policies.

Back to listing page