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Entry Deregulation, Firm Organization and Wage Inequality

Author

Listed:
  • Dudley Cooke

    (University of Exeter)

  • Ana P. Fernandes

    (University of Exeter)

  • Priscila Ferreira

    (NIPE and University of Minho)

Abstract

This paper identifies a causal link between changes in product market competition, firm reorganization and within-firm wage inequality. We exploit a unique episode of comprehensive firm entry deregulation as a quasi-natural experiment and use exceptionally detailed linked employer-employee data for the universe of private sector firms and workers. We find that following deregulation affected firms flatten their hierarchies: the number of layers is reduced and managers´spans of control increased. Dropping a hierarchy layer is accompanied by a significant reduction in wage inequality within the firm, by 10% for the average pay ratio between the top and the bottom layer, showing that there are real changes arising from firm reorganization. Overall dispersion is also reduced. We discuss mechanisms and interpretations for these changes.

Suggested Citation

  • Dudley Cooke & Ana P. Fernandes & Priscila Ferreira, 2020. "Entry Deregulation, Firm Organization and Wage Inequality," NIPE Working Papers 05/2020, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:05/2020
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    References listed on IDEAS

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    More about this item

    Keywords

    Firm entry deregulation; Hierarchical layers; Internal organization; Product Market Competition; Span of control; Wage Inequality;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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