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Firm heterogeneity in capital-labour ratios and wage inequality

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Marco Leonardi

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Abstract

This article documents the increasing dispersion of capital-labour ratios across firms in the US and provides some empirical evidence of a positive correlation at the two-digit industry level between the dispersion of capital-labour ratios across firms and residual wage inequality. To explain this empirical fact, the article adopts a search model where the exogenous decline in the relative price of equipment capital makes the distribution of capital-labour ratios more dispersed and increases wage dispersion among identical workers. OLS estimates of the relationship between capital dispersion and the relative price of equipment capital support the main hypothesis of the model. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2007.02022.x
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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 117 (2007)
Issue (Month): 518 (03)
Pages: 375-398
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Handle: RePEc:ecj:econjl:v:117:y:2007:i:518:p:375-398

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  1. ITO Keiko & Sebastien LECHEVALIER, 2008. "The evolution of the productivity dispersion of firms - A reevaluation of its determinants in the case of Japan," Discussion papers 08014, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
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