Skill-Bias, Firm-Bias, and Wage Inequality

Andre Mouton

No 111, Working Papers from Wake Forest University, Economics Department

Abstract: Changes to occupational and sectoral labor demand are thought to have been skill- biased, raising the skill premium and contributing to wage inequality. I show that these changes have also been firm-biased, impacting the distribution of firm-specific wage components such as shared rents. I characterize firm-bias empirically using German matched employer-employee data, and I quantify its 1993-2017 impact by structurally estimating a search-based model of occupational assignment with industry segmentation. While firm-bias is only marginally important in isolation, interactions with skill-bias - capturing demand's effect on the assortativity of labor markets - account for half of the rise in wage variance from occupational polarization and manufacturing decline. These interactions result in skill-bias being a poor overall predictor of wage outcomes, while policies that target firm rent-sharing can induce skill-biased demand shocks sufficiently strong as to reverse their effect on aggregate inequality.

Keywords: Wage Inequality; Labor Demand; Skill-Bias; Firm Heterogeneity (search for similar items in EconPapers)
JEL-codes: E24 E25 J23 J24 J31 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2024-08-07
New Economics Papers: this item is included in nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:ris:wfuewp:0111

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