Working Paper: NBER ID: w13351
Authors: Giulia Faggio; Kjell Salvanes; John Van Reenen
Abstract: There has been a remarkable increase in wage inequality in the US, UK and many other countries over the past three decades. A significant part of this appears to be within observable groups (such as age-gender-skill cells). A generally untested implication of many theories rationalizing the growth of within-group inequality is that firm-level productivity dispersion should also have increased. The relevant data for the US is problematic, so we utilize a UK panel dataset covering the manufacturing and non-manufacturing sectors since the early 1980s. We find evidence that productivity inequality has increased. Existing studies have underestimated this increased dispersion because they use data from the manufacturing sector which has been in rapid decline. Most of the increase in individual wage inequality has occurred because of an increase in inequality between firms (and within industries). Increased productivity dispersion appears to be linked with new technologies as suggested by models such as Caselli (1999) and is not primarily due to an increase in transitory shocks, greater sorting or entry/exit dynamics.
Keywords: wage inequality; productivity dispersion; panel data; UK; technology
JEL Codes: D24; J24; J31; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm-level productivity (D21) | Individual wage inequality (J31) |
| Sectoral productivity data (O49) | Overall productivity inequality (O49) |
| Total factor productivity (O49) | Labor productivity dispersion (J29) |
| Transition probabilities of firm productivity (F16) | Changes in productivity dispersion (O49) |