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Ownership Networks and Earnings Inequality

Author

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  • Huneeus, Federico
  • Larrain, Borja
  • Larrain, Mauricio
  • Prem, Mounu

Abstract

We use matched employer-employee data together with data on the ownership networks of Chilean firms to document a novel relationship between inequality in labor income and ownership structures. Exploiting transitions of firms in and out of networks, we show that network affiliation is associated with higher inequality along two dimensions. First, network firms pay higher average wages than stand-alone firms, increasing between-firm inequality. Second, the dispersion of wages within a network firm is higher than within a stand-alone firm, increasing within-firm inequality. The effects are driven by increases in the wages of top workers, and by the entry of new top workers. Our findings shed light on the relationship between ownership structures and the distribution of labor income in the economy.

Suggested Citation

  • Huneeus, Federico & Larrain, Borja & Larrain, Mauricio & Prem, Mounu, 2022. "Ownership Networks and Earnings Inequality," IDB Publications (Working Papers) 12234, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:12234
    DOI: http://dx.doi.org/10.18235/0004265
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    Keywords

    Earnings premium; Earnings inequality; Business groups; Ownership;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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