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Firm Heterogeneity in Capital labor Ratios and Wage Inequality

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  • Leonardi, Marco

Abstract

This paper documents the increasing dispersion of capital-labor 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-labor ratios across firms and residual wage inequality. To explain this empirical fact, the paper adopts a search model where firms differ in their optimal capital investment. The exogenous decline in the relative price of equipment capital makes the distributions of capital-labor ratios more dispersed. In a frictional labor market, this force generates 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.

Suggested Citation

  • Leonardi, Marco, 2005. "Firm Heterogeneity in Capital labor Ratios and Wage Inequality," Institute for Research on Labor and Employment, Working Paper Series qt1g9514wh, Institute of Industrial Relations, UC Berkeley.
    • Handle: RePEc:cdl:indrel:qt1g9514wh
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    Cited by:

    1. Silvio Contessi & Francesca de Nicola & Li Li, 2014. "International trade, female labor and entrepreneurship in MENA countries," Chapters, in: Carlo Altomonte & Massimiliano Ferrara (ed.), The Economic and Political Aftermath of the Arab Spring, chapter 4, pages 106-140, Edward Elgar Publishing.
    2. Yip, Chi Man, 2010. "Can't SBTC explain the U.S. wage inequality dynamics?," MPRA Paper 31198, University Library of Munich, Germany.
    3. Li, Jie & Liu, Wanlin & Luo, Changyuan & Song, Hong, 2025. "Politicians' egalitarian cultural values and within-firm wage gaps: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 236(C).
    4. Silvio Contessi & Pierangelo De Pace, 2012. "(Non-)Resiliency Of Foreign Direct Investment In The United States During The 2007–2009 Financial Crisis," Pacific Economic Review, Wiley Blackwell, vol. 17(3), pages 368-390, August.
    5. Hille, Erik & Shahbaz, Muhammad & Moosa, Imad, 2019. "The impact of FDI on regional air pollution in the Republic of Korea: A way ahead to achieve the green growth strategy?," Energy Economics, Elsevier, vol. 81(C), pages 308-326.
    6. Julian Emami Namini, 2009. "International Trade with Firm Heterogeneity in Factor Shares," Tinbergen Institute Discussion Papers 09-020/1, Tinbergen Institute.
    7. Mauro Caselli, 2014. "Trade, skill-biased technical change and wages in Mexican manufacturing," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 336-348, January.

    More about this item

    Keywords

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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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