Working Paper: NBER ID: w21199
Authors: Jae Song; David J. Price; Fatih Guvenen; Nicholas Bloom; Till von Wachter
Abstract: Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer—men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.
Keywords: Earnings Inequality; Firm Behavior; Wage Dispersion
JEL Codes: E24; E25; J31; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing dispersion in average wages paid by employers (J31) | rise in earnings dispersion between workers (J31) |
| within-firm pay inequality (J31) | stable (C62) |
| rise in earnings dispersion between workers (J31) | driven by increasing wage dispersion between firms (J31) |
| wage differences within employers (J31) | unchanged (Y60) |
| wage gap between highest-paid employees and average employee (J31) | marginally increased (F69) |