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Firms, Skills, and Wage Inequality

Author

Listed:
  • Murat Tasci

    (Federal Reserve Bank of Cleveland)

  • Roberto Pinheiro

Abstract

We present a model with search frictions and heterogeneous agents that allows us to decompose the overall increase in US wage inequality in the last 30 years into its within- and between-firm and skill components. We calibrate the model to evaluate how much of the overall rise in wage inequality and its components is explained by different channels. Output distribution per firm-skill pair more than accounts for the observed increase over this period. Parametric identification implies that the worker-specific component is responsible for 85 percent of this, compared to 15 percent that is attributable to firm-level productivity shifts.

Suggested Citation

  • Murat Tasci & Roberto Pinheiro, 2019. "Firms, Skills, and Wage Inequality," Working Papers 170601, Federal Reserve Bank of Cleveland, revised 19 Apr 2019.
  • Handle: RePEc:fip:fedcwq:170601
    DOI: 10.26509/frbc-wp-201706r
    Note: Previous title "Organizations, Skills, and Wage Inequality"
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    References listed on IDEAS

    as
    1. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
    2. Marcus Hagedorn & Tzuo Hann Law & Iourii Manovskii, 2017. "Identifying Equilibrium Models of Labor Market Sorting," Econometrica, Econometric Society, vol. 85, pages 29-65, January.
    3. Tomaz Cajner & David Ratner, 2016. "A Cautionary Note on the Help Wanted Online Data," FEDS Notes 2016-06-23, Board of Governors of the Federal Reserve System (U.S.).
    4. Elizabeth Weber Handwerker & James R. Spletzer, 2016. "The Role of Establishments and the Concentration of Occupations in Wage Inequality," Research in Labor Economics, in: Lorenzo Cappellari & Solomon W. Polachek & Konstantinos Tatsiramos (ed.), Inequality: Causes and Consequences, volume 43, pages 167-193, Emerald Publishing Ltd.
    5. Isabel Cairó & Tomaz Cajner, 2018. "Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability," Economic Journal, Royal Economic Society, vol. 128(609), pages 652-682, March.
    6. Jolivet, Grégory, 2009. "A longitudinal analysis of search frictions and matching in the U.S. labor market," Labour Economics, Elsevier, vol. 16(2), pages 121-134, April.
    7. Lawrence Uren & Gabor Virag, 2011. "Skill Requirements, Search Frictions, And Wage Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 379-406, May.
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    More about this item

    Keywords

    wage inequality; Multi-agent firms; skill distributions;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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