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Product Market Competition and Returns to Talent


  • We thank the co-editor, two referees, participants at the 2009 CEA meetings, and discussant Joel Sandonis for helpful comments. We are grateful to the SSHRC for funding and Statistics Canada for access to the data.


This paper investigates how product market competition influences the wages paid to workers and the distribution of talent across industries. We develop a model where firms facing different competitive conditions bid for workers. The model predicts that wages are increasing in talent, decreasing in competition, and the interaction between talent and competition is positive. In addition, the most talented workers will be concentrated in competitive industries and talent dispersion rises with competition. We use linked employee–employer data to test these predictions.