The Evolution of Inequality in Productivity and Wages: Panel Data Evidence

Giulia Faggio, Kjell G Salvanes () and John van Reenen ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: There has been a remarkable increase in wage inequality in the US, UK and many othercountries over the past three decades. A significant part of this appears to be withinobservable groups (such as age-gender-skill cells). A generally untested implication of manytheories rationalizing the growth of within-group inequality is that firm-level productivitydispersion should also have increased. Since the relevant data do not exist in the US we utilizea UK longitudinal panel dataset covering the manufacturing and non-manufacturing sectorssince the early 1980s. We find evidence that productivity inequality has increased. Existingstudies have underestimated this increased dispersion because they use data from themanufacturing sector which has been in rapid decline. Most of the increase in individual wageinequality has occurred because of an increase in inequality between firms (and withinindustries). Increased productivity dispersion appears to be linked with new technologies assuggested by models such as Caselli (1999) and is not primarily due to an increase intransitory shocks, greater sorting or entry/exit dynamics.

Keywords: wage inequality; productivity dispersion; technology (search for similar items in EconPapers)
JEL-codes: D24 J24 J31 O31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-lab
Date: 2007-08
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Working Paper: The Evolution of Inequality in Productivity and Wages: Panel Data Evidence (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0821

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