Entry Deregulation, Firm Organization and Wage Inequality

Dudley Cooke (), Ana Fernandes and Priscila Ferreira ()
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Dudley Cooke: University of Exeter

No 05/2020, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: This paper identifies a causal link between changes in product market competition, firm reorganization and within-firm wage inequality. We exploit a unique episode of comprehensive firm entry deregulation as a quasi-natural experiment and use exceptionally detailed linked employer-employee data for the universe of private sector firms and workers. We find that following deregulation affected firms flatten their hierarchies: the number of layers is reduced and managers´spans of control increased. Dropping a hierarchy layer is accompanied by a significant reduction in wage inequality within the firm, by 10% for the average pay ratio between the top and the bottom layer, showing that there are real changes arising from firm reorganization. Overall dispersion is also reduced. We discuss mechanisms and interpretations for these changes.

Keywords: Firm entry deregulation; Hierarchical layers; Internal organization; Product Market Competition; Span of control; Wage Inequality (search for similar items in EconPapers)
JEL-codes: J31 L22 L23 M12 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-lma
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Journal Article: Entry deregulation, firm organization, and wage inequality (2021)
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