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In the Land of AKM: Explaining the Dynamics of Wage Inequality in France

Author

Listed:
  • D.Babet

    (Insee)

  • O.Godechot

    (Sciences Po, CRIS-CNRS and AxPo)

  • M.G. Palladino

    (Banque de France; Sciences Po)

Abstract

We use a newly built and quasi-exhaustive matched employer-employee database to study firms contribution towage inequalities in France. We employ the Abowd, Kramarz, and Margolis (1999) model (hereafter AKM) to decompose log-wage variance into between- and within-firm components. Our analysis covering the period from 2002 to 2019 reveals a significant increase in between-firm inequalities, driven by a growing tendency of high-wage workers to cluster together in high premium firms. These phenomena are directly associated with changes in firms demographics and workforce composition. Over the same period, bottom earnings percentiles increased more than the rest of the distribution, in line with the rise in the legal minimum wage. As a result, within-firm inequalities decreased, almost offsetting the rising between-firm inequalities.

Suggested Citation

  • D.Babet & O.Godechot & M.G. Palladino, 2023. "In the Land of AKM: Explaining the Dynamics of Wage Inequality in France," Documents de Travail de l'Insee - INSEE Working Papers 2023-20, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:2023-20
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p08d94gk?rk=450646;0
    File Function: Document de travail de la DESE numero 2023/20
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    More about this item

    Keywords

    Wage inequality; firm wage premium; AKM decomposition;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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