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Firming Up Inequality

Jae Song, David Price, Fatih Guvenen (), Nicholas Bloom () and Till von Wachter
Additional contact information
Jae Song: Social Security Administration
David Price: Princeton University
Till von Wachter: UCLA and NBER

Working Papers from Princeton University, Department of Economics, Industrial Relations Section.

Abstract: We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred between firms. However, this rising between-firm variance is not accounted for by the firms themselves: the firm-related rise in the variance can be decomposed into two roughly equally important forces -- a rise in the sorting of high-wage workers to high-wage firms and a rise in the segregation of similar workers between firms. In contrast, we do not find a rise in the variance of firm-specific pay once we control for worker composition. Instead, we see a substantial rise in dispersion of person-specific pay, accounting for 68% of rising inequality, potentially due to rising returns to skill. The rise in between-firm variance, mostly due to worker sorting and segregation, accounted for a particularly large share of the total increase in inequality in smaller and medium firms (explaining 84% for firms with fewer than 10,000 employees). In contrast, in the very largest firms with 10,000+ employees, 42% of the increase in the variance of earnings took place within firms, driven by both declines in earnings for employees below the median and a substantial rise in earnings for the 10% best-paid employees. However, because of their small number, the contribution of the very top 50 or so earners at large firms to the overall increase in within-firm earnings inequality is small.

Keywords: Income inequality; pay inequality; between firm inequality (search for similar items in EconPapers)
JEL-codes: E23 J21 J31 (search for similar items in EconPapers)
Date: 2018-04
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Related works:
Working Paper: Firming Up Inequality (2018) Downloads
Working Paper: Firming Up Inequality (2015) Downloads
Working Paper: Firming up inequality (2015) Downloads
Working Paper: Firming Up Inequality (2015) Downloads
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