Firming Up Inequality

Nicholas Bloom, Fatih Guvenen, David Price, Jae Song () and Till von Wachter

No 750, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We ?nd that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred between firms. However, this rising between-firm variance is not accounted for by the firms themselves: the firm-related rise in the variance can be decomposed into two roughly equally important forces?a rise in the sorting of high-wage workers to high-wage firms and a rise in the segregation of similar workers between firms. In contrast, we do not ?nd a rise in the variance of firm-speci?c pay once we control for worker composition. Instead, we see a substantial rise in dispersion of person-speci?c pay, accounting for 68% of rising inequality, potentially due to rising returns to skill. The rise in between-firm variance, mostly due to worker sorting and segregation, accounted for a particularly large share of the total increase in inequality in smaller and medium firms (explaining 84% for firms with fewer than 10,000 employees). In contrast, in the very largest firms with 10,000+ employees, 42% of the increase in the variance of earnings took place within firms, driven by both declines in earnings for employees below the median and a substantial rise in earnings for the 10% best-paid employees. However, because of their small number, the contribution of the very top 50 or so earners at large firms to the overall increase in within-firm earnings inequality is small.

Keywords: Income inequality; Pay inequality; Between-firm inequality (search for similar items in EconPapers)
JEL-codes: E23 J21 J31 (search for similar items in EconPapers)
Pages: 91 pages
Date: 2018-04-09
New Economics Papers: this item is included in nep-bec, nep-lma and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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Related works:
Journal Article: Firming Up Inequality (2019)
Working Paper: Firming Up Inequality (2018)
Working Paper: Firming Up Inequality (2015)
Working Paper: Firming up inequality (2015)
Working Paper: Firming Up Inequality (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:750

DOI: 10.21034/wp.750

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