Firms and Inequality

Paper Session

Saturday, Jan. 7, 2017 10:15 AM – 12:15 PM

Hyatt Regency Chicago, Columbian
Hosted By: Labor and Employment Relations Association
  • Chair: Jesse Rothstein, University of California-Berkeley

Estimating Compensating Wage Differentials with Endogenous Job Mobility

Ian Schmutte
,
University of Georgia
Kurt Lavetti
,
Ohio State University

Abstract

We demonstrate a strategy for using matched employer-employee data to correct endogenous job mobility bias when estimating compensating wage differentials. Applied to fatality rates in the census of formal-sector jobs in Brazil between 2003-2010, we show why common approaches to eliminating ability bias can greatly amplify endogenous job mobility bias. By extending the search-theoretic hedonic wage frame- work, we establish conditions necessary to interpret our estimates as preferences. We present empirical analyses supporting the predictions of the model and identifying conditions, demonstrating that the standard models are misspecified, and that our proposed model eliminates latent ability and endogenous mobility biases.

Between-Firm Changes in Earnings Inequality: The Role of Productivity Dispersion and the Changing Composition of Firms and Workers

James R. Spletzer
,
U.S. Census Bureau
John C. Haltiwanger
,
University of Maryland

Abstract

Do the job-to-job moves of workers contribute to the cyclicality of employment growth at different types of firms? In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in job reallocation in the U.S. economy. To guide our analysis, we look to the theoretical literature on on-the-job search, which predicts that job-to-job flows should reallocate workers from small to large firms. While this prediction is not supported by the data, we do find that job-to-job moves generally reallocate workers from lower paying to higher paying firms, and this reallocation of workers is highly procyclical. During the Great Recession, this firm wage job ladder collapsed, with net worker reallocation to higher wage firms falling to zero. We also find that differential responses of net hires from non-employment play an important role in the patterns of the cyclicality of employment dynamics across firms classified by size and wage. For example, we find that small and low wage firms experience greater reductions in net hires from non-employment during periods of economic contractions.

The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure

Deborah Goldschmidt
,
Boston University
Johannes F. Schmieder
,
Boston University

Abstract

The nature of the relationship between employers and employees has been changing over the last three decades, with firms increasingly relying on contractors, temp agencies and franchises rather than hiring employees directly. We investigate the impact of this transformation on the wage structure by following jobs that are moved outside of the boundary of lead employers to contracting firms. For this end we develop a new method for identifying outsourcing of food, cleaning, security and logistics services in administrative data using the universe of social security records in Germany. We document a dramatic growth of domestic outsourcing in Germany since the early 1990s. Event-study analyses show that wages in outsourced jobs fall by approximately 10-15% relative to similar jobs that are not outsourced. We find evidence that the wage losses associated with outsourcing stem from a loss of firm-specific rents, suggesting that labor cost savings are an important reason why firms choose to contract out these services. Finally, we tie the increase in outsourcing activity to broader changes in the German wage structure, in particular showing that outsourcing of cleaning, security and logistics services alone accounts for around 9 percent of the increase in German wage inequality since the 1980s.

Firming Up Inequality

Jae Song
,
U.S. Social Security Administration
David J. Price
,
Stanford University
Fatih Guvenen
,
University of Minnesota
Nicholas Bloom
,
Stanford University
Till M. von Wachter
,
University of California-Los Angeles

Abstract

Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer - men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.
Discussant(s)
Johannes F. Schmieder
,
Boston University
Jesse Rothstein
,
University of California-Berkeley
JEL Classifications
  • J0 - General