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Criscuolo, Chiara
Hijzen, Alexander
Schwellnus, Cyrille
Barth, Erling
Chen, Wen-Hao
Fabling, Richard
Fialho, Priscilla
Grabska, Katarzyna
Kambayashi, Ryo
Leidecker, Timo
Nordström Skans, Oskar
Riom, Capucine
Roth, Duncan
Stadler, Balazs
Upward, Richard
Zwysen, Wouter
Year of Publication: 
Series/Report no.: 
IZA Discussion Papers No. 13212
Institute of Labor Economics (IZA), Bonn
In many OECD countries, low productivity growth has coincided with rising inequality. Widening wage and productivity gaps between firms may have contributed to both developments. This paper uses a new harmonised cross-country linked employer-employee dataset for 14 OECD countries to analyse the role of firms in wage inequality. The main finding is that, on average across countries, changes in the dispersion of average wages between firms explain about half of the changes in overall wage inequality. Two thirds of these changes in between-firm wage inequality are accounted for by changes in productivity-related premia that firms pay their workers above common market wages. The remaining third can be attributed to changes in workforce composition, including the sorting of high-skilled workers into high-paying firms. Over all, these results suggest that firms play an important role in explaining wage inequality as wages are driven to a significant extent by firm performance rather than being exclusively determined by workers' earnings characteristics.
wage inequality
firm wage premium
Document Type: 
Working Paper

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