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Workforce composition, productivity and pay: the role of firms in wage inequality

Author

Listed:
  • Chiara Criscuolo
  • Alexander Hijzen
  • Cyrille Schwellnus
  • Erling Barth
  • Wen-Hao Chen
  • Richard Fabling
  • Priscilla Fialho
  • Balazs Stadler
  • Richard Upward
  • Wouter Zwysen
  • Katarzyna Grabska-Romagosa
  • Ryo Kambayashi
  • Timo Leidecker
  • Oskar Nordström Skans
  • Capucine Riom
  • Duncan Roth

Abstract

In many OECD countries, low productivity growth has coincided with rising inequality. Widening wage and productivity gaps between firms may have contributed to both developments. This paper uses a new harmonised cross-country linked employer-employee dataset for 14 OECD countries to analyse the role of firms in wage inequality. The main finding is that, on average across countries, changes in the dispersion of average wages between firms explain about half of the changes in overall wage inequality. Two thirds of these changes in between-firm wage inequality are accounted for by changes in productivity-related premia that firms pay their workers above common market wages. The remaining third can be attributed to changes in workforce composition, including the sorting of high-skilled workers into high-paying firms.

Suggested Citation

  • Chiara Criscuolo & Alexander Hijzen & Cyrille Schwellnus & Erling Barth & Wen-Hao Chen & Richard Fabling & Priscilla Fialho & Balazs Stadler & Richard Upward & Wouter Zwysen & Katarzyna Grabska-Romago, 2020. "Workforce composition, productivity and pay: the role of firms in wage inequality," OECD Economics Department Working Papers 1603, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1603-en
    DOI: 10.1787/52ab4e26-en
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    Cited by:

    1. Bertheau, Antoine & Acabbi, Edoardo & Barcelo, Cristina & Gulyas, Andreas & Lombardi, Stefano & Saggio, Raffaele, 2022. "The Unequal Cost of Job Loss across Countries," IZA Discussion Papers 15033, Institute of Labor Economics (IZA).
    2. Wouter Zwysen, 2024. "Working apart: Domestic outsourcing in Europe," European Journal of Industrial Relations, , vol. 30(2), pages 221-241, June.
    3. Marco Di Cataldo & Elena Renzullo & Andrés Rodríguez-Pose, 2025. "Cohesion or collusion? EU funds in places with corrupt local institutions," Papers in Evolutionary Economic Geography (PEEG) 2510, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2025.
    4. Han Bu & Zhou Xun & Sha Cai, 2024. "Big data and inter-firm wage disparities: theory and evidence from China," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-36, August.
    5. Forth, John & Theodoropoulos, Nikolaos, 2022. "Earnings Discrimination in the Workplace," GLO Discussion Paper Series 1110, Global Labor Organization (GLO).
    6. Patino Pena,Fausto Andres & Ferro,Esteban, 2024. "The Role of Firm Dynamics in Aggregate Productivity, Job Flows, and Wage Inequality in Ecuador," Policy Research Working Paper Series 10739, The World Bank.
    7. Pardy, Martina & Rodríguez-Pose, Andrés, 2025. "Trade ties and economic divides: trade and income inequality in the regions of Europe," LSE Research Online Documents on Economics 128063, London School of Economics and Political Science, LSE Library.
    8. Fabling Richard, 2024. "Still medalling: Productivity gets a bronze (data source)," Motu Working Papers 24_06, Motu Economic and Public Policy Research.
    9. Valerie Lankester-Campos & Catalina Sandoval-Alvarado, 2021. "Wage inequality and firm productivity: analysis with employer-employee data," Notas Técnicas 2105, Banco Central de Costa Rica.
    10. Berlingieri, Giuseppe & Blanchenay, Patrick & Criscuolo, Chiara, 2024. "The great divergence(s)," Research Policy, Elsevier, vol. 53(3).

    More about this item

    Keywords

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    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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