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

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  • Olivier Godechot

    (Sciences Po - Sciences Po)

  • Marco G Palladino

    (Sciences Po - Sciences Po)

  • Damien Babet

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.
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  • Olivier Godechot & Marco G Palladino & Damien Babet, 2023. "In the Land of AKM: Explaining the Dynamics of Wage Inequality in France," Working Papers hal-04319406, HAL.
    • Handle: RePEc:hal:wpaper:hal-04319406
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    2. Breda, Thomas & Haywood, Luke & Wang, Haomin, 2024. "Equilibrium effects of payroll tax reductions and optimal policy design," Labour Economics, Elsevier, vol. 91(C).
    3. Eren Gürer & Erol Taymaz, 2025. "Skill-Biased Wage Effects of Domestic Outsourcing," CESifo Working Paper Series 11758, CESifo.
    4. Schmutz-Bloch, Benoît & Sidibé, Modibo, 2024. "Matching, centrality and the urban network," Journal of Urban Economics, Elsevier, vol. 144(C).

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    More about this item

    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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