Nicholas Bloom, Stanford University
Nicholas Bloom, Stanford University
Firming Up Inequality
Firming Up Inequality
26 Oct 20172:00 PM – 3:30 PM
Location:
Cotting Conference Room
Abstract
We
use a massive, new, matched employer-employee database for the United States to
analyze the contribution of firms to the rise in earnings inequality from 1978
to 2013. We find that one-third of the rise in the variance of (log) earnings
occurred within firms, whereas two-thirds of the rise occurred between firms.
However, this rising between-firm variance is not accounted for by the firms
themselves: the firm-related rise in the variance can be decomposed into two
roughly equally important forces—a rise in the assortative matching of high-wage
workers to high-wage firms and a rise in segregation of similar workers between
firms. In contrast, we do not find a rise in the variance of firm-specific pay
once we control for worker composition. Instead, we see a substantial rise in
dispersion of person-specific pay, accounting for 77% of rising inequality,
potentially due to rising returns to skill. The rise in between-firm variance
due to worker sorting and segregation accounted for a particularly large share
of the total increase in inequality in smaller and medium firms (explaining 84%
for firms with fewer than 10,000 employees). In contrast, in the very largest
firms with 10,000+ employees, almost half of the increase in the variance of
earnings took place within firms, driven by both declines in earnings for
employees below the median and a substantial rise in earnings for the 10%
best-paid employees. However, because of their small number, the contribution
of these very top earners to the overall increase in within-firm earnings
inequality is small.