The Quantile Impacts of Real Competition on Industrial Wage Inequality in the United States, 1998-2018

Abstract

Competition between firms has a substantial impact on wage inequality between workers. The classical political economics literature proposes that turbulent dynamics of real competition within and between industries provide the framework for wage bargaining between workers and firms. Turbulently equalizing limits provide the link between competition and wage growth, while persistently different factors are responsible for persistent industrial wage premiums. In this paper we test the theoretical contribution of Botwinick (1993) and the empirical findings on the aggregate level by Mokre and Rehm (2020) over the full wage distribution. We combine employee level data from the CPS and industry level data from BEA industry accounts from 1998-2018 to find that the impacts of competition on wages are substantial and of unambiguous signs, but differential magnitude between income quantiles in those industries where both incremental profit rates and wage growth participate in turbulent equalization. The results address the suspicion that quasi-managerial profit sharing (rather than wage setting) carry the econometric link between competition and wages, and provide insights into the distributional dynamics of bargaining under real competition.