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Earnings Inequality in Production Networks

Federico Huneeus (), Kory Kroft and Kevin Lim

No 28424, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a quantitative model in which heterogeneous firms hire heterogeneous workers in an imperfectly competitive labor market and source intermediates from suppliers in a production network. We use the model to investigate how the production network shapes three key labor market outcomes: the passthrough of firm-level productivity, demand, and cost shocks into worker earnings; the distribution of firm effects on worker earnings; and firm heterogeneity in labor shares of value-added. We establish identification of model parameters and estimate them using linked employer-employee and firm-to-firm transactions data from Chile. Reduced-form evidence based on export demand and import cost shocks support the predictions of our model regarding the passthrough of these shocks to earnings. Counterfactual simulations show that heterogeneity in network linkages explains 21% of earnings variance, while labor value-added shares are less dispersed and less negatively correlated with firm size under the observed production network than under a random network.

JEL-codes: F0 F12 F16 J0 J31 J42 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-lma and nep-net
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