Income Inequality Within and Across Firms
Friday, Jan. 6, 2017 1:00 PM – 3:00 PM
- Chair: Christian Moser, Columbia University
Can Employer Heterogeneity Explain Gender and Racial Pay Gaps in the U.S.?
AbstractWe assess the extent to which a rise in the minimum wage can account for three facts characterizing a large decline in earnings inequality in Brazil from 1996-2012: (i) the decline is more pronounced towards the bottom of the distribution; (ii) one quarter of the decline stems from an increase in relative pay at less productive firms; and (iii) another quarter is attributable to falling pay differences due to worker heterogeneity. To this end, we build an equilibrium search model with heterogeneity in worker ability and firm productivity. The central feature of the model is the presence of spillover effects of the minimum wage on higher earnings ranks due to monopsonistic competition among firms for workers. We estimate the model using indirect inference and find that the rise in the minimum wage explains 70 percent of the decline in the variance of log earnings. Spillover effects of the minimum wage account for more than half of this decline and quantitatively match the three empirical facts. Our results suggest that labor market dynamics can lead to large effects of policy on earnings inequality.
Within-Firm Pay Inequality
AbstractFinancial regulators and investors alike have expressed concerns about high pay
inequality within firms. Using a proprietary data set of public and private firms,
this paper shows that firms with higher pay inequality–relative wage differentials
between top- and bottom-level jobs–are larger and have higher valuations, better
operating performance, and higher equity returns. High-inequality firms also exhibit
larger earnings surprises, consistent with the argument that pay inequality is not
fully priced by the market. Overall, our results support the notion that high pay
disparities within firms are a reflection of better managerial talent.
Ranking Firms Using Revealed Preference
AbstractThis paper estimates workers’ preferences for firms by studying the structure of employer-to- employer transitions in U.S. administrative data. The paper uses a tool from numerical linear algebra to measure the central tendency of worker flows, which is closely related to the ranking of firms revealed by workers’ choices. There is evidence for compensating differential when workers systematically move to lower-paying firms in a way that cannot be accounted for by layoffs or differences in recruiting intensity. Compensating differentials account for about 15% of the variance of earnings.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- J3 - Wages, Compensation, and Labor Costs