Dynamic Monopsony with Granular Firms

This paper extends the “dynamic monopsony” Burdett-Mortensen model of wage posting and on-the-job search to incorporate granular employers with decreasing returns to scale. We provide a complete analytical characterization of the resulting equilibrium and show how to allow for firm heterogeneity, additional inputs, and product market power. As an application, we study noncompete agreements theoretically and quantitatively. A US ban would yield wage gains typically in the range of 0.8 − 3% depending on local conditions, with a baseline estimate of 0.9%, but these come with higher worker turnover and a mild decline in aggregate welfare.