Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/141609
Authors: 
Card, David
Cardoso, Ana Rute
Heining, Jörg
Kline, Patrick
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 9850
Abstract: 
We review the literature on firm-level drivers of labor market inequality. There is strong evidence from a variety of fields that standard measures of productivity – like output per worker or total factor productivity – vary substantially across firms, even within narrowly-defined industries. Several recent studies note that rising trends in the dispersion of productivity across firms mirror the trends in the wage inequality across workers. Two distinct literatures have searched for a more direct link between these two phenomena. The first examines how wages are affected by differences in employer productivity. Studies that focus on firm-specific productivity shocks and control for the non-random sorting of workers to more and less productive firms typically find that a 10% increase in value-added per worker leads to somewhere between a 0.5% and 1.5% increase in wages. A second literature focuses on firm-specific wage premiums, using the wage outcomes of job changers. This literature also concludes that firm pay setting is important for wage inequality, with many studies finding that firm wage effects contribute approximately 20% of the overall variance of wages. To interpret these findings, we develop a model where workplace environments are viewed as imperfect substitutes by workers, and firms set wages with some degree of market power. We show that simple versions of this model can readily match the stylized empirical findings in the literature regarding rent-sharing elasticities and the structure of firm-specific pay premiums.
Subjects: 
wage distribution
rent sharing
monopsony
job mobility
linked employer-employee data
JEL: 
D22
J31
J42
Document Type: 
Working Paper

Files in This Item:
File
Size
718.08 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.