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http://hdl.handle.net/10419/20146
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| Title: | | Firm Heterogeneity in Capital/Labor Ratios and Wage Inequality  |
| Authors: | | Leonardi, Marco |
| Issue Date: | | 2003 |
| Series/Report no.: | | IZA Discussion paper series 909 |
| Abstract: | | This paper provides some empirical evidence and a theory of the relationship between residual wage inequality and the increasing dispersion of capital/labor ratios across firms. I document the increasing variance of capital/labor ratios across firms in the US labor market. I also show that the increase in the capital intensity variance across firms is associated with the increasing wage variance across workers. To explain this empirical fact, I adopt a search model where firms differ in their optimal capital investment. The decline in the relative price of equipment capital makes the firm distribution of capital/labor ratios more dispersed. In a frictional labor market, this force generates wage dispersion among identical workers. Simple calibration of the model indicates that the dispersion of capital/labor ratios can account for about one third of the total increase in residual wage inequality. |
| Subjects: | | wage inequality capital intensity search models |
| JEL: | | J31 J21 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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| dp909.pdf | | 517.24 kB | Adobe PDF |
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