Workforce Composition, Productivity and Pay: The Role of Firms in Wage Inequality

Chiara Criscuolo, Alexander Hijzen, Cyrille Schwellnus, Erling Barth, Wen-Hao Chen (), Richard Fabling, Priscilla Fialho (), Katarzyna Grabska, Ryo Kambayashi (), Timo Leidecker, Oskar Skans, Capucine Riom, Duncan Roth, Balazs Stadler (), Richard Upward and Wouter Zwysen ()
Additional contact information
Cyrille Schwellnus: OECD
Priscilla Fialho: OECD
Katarzyna Grabska: Maastricht University
Timo Leidecker: OECD
Capucine Riom: London School of Economics
Balazs Stadler: OECD
Wouter Zwysen: ISER, University of Essex

No 13212, IZA Discussion Papers from Institute of Labor Economics (IZA)

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. Over all, these results suggest that firms play an important role in explaining wage inequality as wages are driven to a significant extent by firm performance rather than being exclusively determined by workers' earnings characteristics.

Keywords: wage inequality; firm wage premium; productivity (search for similar items in EconPapers)
JEL-codes: D2 J31 J38 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2020-05
New Economics Papers: this item is included in nep-bec, nep-eff, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Workforce composition, productivity and pay: the role of firms in wage inequality (2020)
Working Paper: Workforce composition, productivity and pay: The role of firms in wage inequality (2020)
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