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Firming Up Inequality

Author

Listed:
  • Jae Song
  • David J. Price
  • Fatih Guvenen
  • Nicholas Bloom
  • Till von Wachter

Abstract

Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer—men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.

Suggested Citation

  • Jae Song & David J. Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2015. "Firming Up Inequality," NBER Working Papers 21199, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21199
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Corporations in the Age of Inequality: A Skeptic's Take
      by Doug Campbell in Douglas L. Campbell on 2017-03-26 14:45:00

    Citations

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    Cited by:

    1. Daniel Schaefer & Carl Singleton, 2017. "Recent Changes in British Wage Inequality: Evidence from Firms and Occupations," 2017 Meeting Papers 459, Society for Economic Dynamics.
    2. Elizabeth Weber Handwerker & James R. Spletzer, 2016. "The Role of Establishments and the Concentration of Occupations in Wage Inequality," Research in Labor Economics,in: Inequality: Causes and Consequences, volume 43, pages 167-193 Emerald Publishing Ltd.
    3. Thibault Fally & Benjamin Faber, 2016. "Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data," 2016 Meeting Papers 381, Society for Economic Dynamics.
    4. Henry S. Farber & Daniel Herbst & ilyana Kuziemko & Suresh Naidu, 2018. "Unions and Inequality Over the Twentieth Century: New Evidence from Survey Data," Working Papers 620, Princeton University, Department of Economics, Industrial Relations Section..
    5. repec:red:ecodyn:v:18:y:2017:i:1:agenda is not listed on IDEAS
    6. Hyatt, Henry R. & Spletzer, James R., 2017. "The recent decline of single quarter jobs," Labour Economics, Elsevier, vol. 46(C), pages 166-176.
    7. Erik Brynjolfsson & Daniel Rock & Chad Syverson, 2018. "Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics," NBER Chapters,in: The Economics of Artificial Intelligence: An Agenda National Bureau of Economic Research, Inc.
    8. Falk, Armin, 2017. "Status Inequality, Moral Disengagement and Violence," IZA Discussion Papers 10921, Institute for the Study of Labor (IZA).
    9. Åsa Johansson, 2016. "Public Finance, Economic Growth and Inequality: A Survey of the Evidence," OECD Economics Department Working Papers 1346, OECD Publishing.
    10. Dominique Guellec & Caroline Paunov, 2017. "Digital Innovation and the Distribution of Income," NBER Chapters,in: Measuring and Accounting for Innovation in the 21st Century National Bureau of Economic Research, Inc.
    11. Akerman, Anders, 2018. "The Relative Skill Demand of Superstar Firms and Aggregate Implications," Research Papers in Economics 2018:2, Stockholm University, Department of Economics.
    12. Bayer, Christian & Kuhn, Moritz, 2018. "Which Ladder to Climb? Wages of Workers by Job, Plant, and Education," IZA Discussion Papers 11827, Institute for the Study of Labor (IZA).
    13. Ethan Rouen, 2017. "Rethinking Measurement of Pay Disparity and its Relation to Firm Performance," Harvard Business School Working Papers 18-007, Harvard Business School.
    14. Emilien Gouin-Bonenfant, 2018. "Productivity Dispersion, Between-firm Competition and the Labor Share," 2018 Meeting Papers 1171, Society for Economic Dynamics.
    15. repec:bla:indrel:v:48:y:2017:i:3:p:231-255 is not listed on IDEAS
    16. soyoung Lee, 2018. "The Role of Firm Heterogeneity in the Earnings Inequality," 2018 Meeting Papers 1155, Society for Economic Dynamics.
    17. Christian Bayer & Moritz Kuhn, 2018. "Which Ladder to Climb? Wages of workers by job, plant, and education," 2018 Meeting Papers 648, Society for Economic Dynamics.
    18. Christian Bayer & Moritz Kuhn, 2018. "Which Ladder to Climb? Wages of Workers by Job, Plant, and Education," CESifo Working Paper Series 7236, CESifo Group Munich.
    19. Andreas Gulyas, 2018. "Identifying Labor Market Sorting with Firm Dynamics," 2018 Meeting Papers 856, Society for Economic Dynamics.
    20. Henry S. Farber & Daniel Herbst & Ilyana Kuziemko & Suresh Naidu, 2018. "Unions and Inequality Over the Twentieth Century: New Evidence from Survey Data," NBER Working Papers 24587, National Bureau of Economic Research, Inc.

    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
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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