Working Paper: NBER ID: w20447
Authors: Erling Barth; Alex Bryson; James C. Davis; Richard Freeman
Abstract: This paper links data on establishments and individuals to analyze the role of establishments in the increase in inequality that has become a central topic in economic analysis and policy debate. It decomposes changes in the variance of ln earnings among individuals into the part due to changes in earnings among establishments and the part due to changes in earnings within-establishments and finds that much of the 1970s-2010s increase in earnings inequality results from increased dispersion of the earnings among the establishments where individuals work. It also shows that the divergence of establishment earnings occurred within and across industries and was associated with increased variance of revenues per worker. Our results direct attention to the fundamental role of establishment-level pay setting and economic adjustments in earnings inequality.
Keywords: earnings inequality; establishment-level pay setting; labor market adjustments
JEL Codes: D3; J3; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in earnings inequality from the 1970s to 2010s (D31) | increased variance in earnings among establishments (J31) |
| divergence of establishment earnings occurred both within and across industries (L19) | increased variance in revenues per worker (J39) |
| increased variance of establishment earnings (J39) | significant portion of the overall increase in individual earnings inequality (D31) |
| changes in between-establishment variance (C21) | increased variance among workers (J29) |
| divergence of earnings at respective establishments (J31) | increased earnings of top earners (D33) |
| establishment effects (D72) | overall variance in earnings (J31) |