FIRMING UP INEQUALITY

Jae Song

doi:10.1093/qje/qjy025

FIRMING UP INEQUALITY

2018-10-25

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DOI：10.1093/qje/qjy025

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We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred due to a rise in the dispersion of average earnings between firms. However, this rising between-firm variance is not accounted for by the firms themselves but by a widening gap between firms in the composition of their workers. This compositional change can be split into two roughly equal parts: high-wage workers became increasingly likely to work in high-wage firms (i.e., sorting increased), and high-wage workers became increasingly likely to work with each other (i.e., segregation rose). In contrast, we do not find a rise in the variance of firm-specific pay once we control for the worker composition in firms. Finally, we find that two-thirds of the rise in the within-firm variance of earnings occurred within mega (10,000+ employee) firms, which saw a particularly large increase in the variance of earnings compared with smaller firms. JEL Codes: E23, J21, J31.

Keywords:

HIGH WAGE WORKERS

UNITED-STATES

EARNINGS INEQUALITY

MOBILITY

FIRMING UP INEQUALITY

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