Wages and Inequality
Friday, Jan. 4, 2019 2:30 PM - 4:30 PM
- Chair: Nicholas Bloom, Stanford University
Management and Within-Firm Inequality: Evidence from Microdata
AbstractWe match data from the Census Bureau’s Management and Organizational Practices Survey (MOPS) to linked employer-employee data from the Longitudinal Employer-Household Dynamics (LEHD) program to examine the relationship between the use of structured management practices and within-firm worker outcomes. We document several key empirical facts. First, more structured management practices are correlated with less dispersion in within-firm wages. In particular, we see a decrease in the wage gap between workers at the 90th percentile and workers at the 10th percentile. Practices associated with more structured performance monitoring and target-setting are correlated with less dispersion in the firms’ wages, while practices associated with the implementation of performance incentives are correlated with greater dispersion. Finally, the use of structured management practices is negatively correlated with worker turnover.
Between Firm Changes in Earnings Inequality: The Role of Productivity Dispersion, the Composition of Firms and Workers, and Industry Earnings Differentials
AbstractMuch of what we know about increasing inequality comes from publicly available statistics from the Current Population Survey (CPS) and the Internal Revenue Service (IRS). These statistics, such as the 90/10 ratio and the share of income going to the top percentiles, show that inequality has been increasing since the late 1970s / early 1980s. A recent strand of the literature documents that the firm explains a large role of this increasing inequality – specifically, most of the increasing variance of individual earnings is between firms rather than within firms. This paper creates between-firm and within-firm inequality statistics from the Longitudinal Employer-Household Dynamics (LEHD) data. The LEHD is a longitudinally linked employer-employee dataset created at the U.S. Census Bureau. We show that individual-level inequality statistics from the LEHD are extremely similar, in both levels and trends, to the published statistics from the CPS and the IRS. The LEHD also confirms the important role of the firm: between 1997 and 2013, 98% of the growth of earnings variance is between firms, where firms are defined by the state unemployment insurance identifier, and 78% of the growth of earnings variance is between firms when firms are defined by a national enterprise identifier. We then turn to the question of why does the firm matter, focusing on worker-firm sorting and rent sharing. We use standard Juhn, Murphy, and Pierce variance decomposition techniques to document which characteristics of firms explain, in an accounting sense, the increases in between firm inequality. Our results show that rent-sharing plays only a minor role, where a positive correlation between increasing dispersion of firm productivity and firm earnings is offset by the strength of the relationship between these two declining over time. The returns to worker demographics account for a substantial fraction of increasing between-firm earnings dispersion. Our most surprising empirical finding is that shifting industry earnings differentials account for 75% of the increasing variance growth of between-firm earnings in a simple model, and 48% in a model that controls for worker and firm characteristics. We conclude this paper with an empirical explanation of what industry characteristics are responsible for these shifting industry differentials, with a focus on industry characteristics such as hours, benefits, outsourcing, trade, and technology.
Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?
AbstractWe analyze the effect of local-level labor market concentration on wages. Using plant-level U.S. Census data over the period 1977–2009, we find that: (1) local-level employer concentration exhibits substantial cross-sectional and time-series variation and increases over time; (2) consistent with labor market monopsony power, there is a negative relation between local-level employer concentration and wages that is more pronounced at high levels of concentration and increases over time; (3) the negative relation between labor market concentration and wages is stronger when unionization rates are low; (4) the link between productivity growth and wage growth is stronger when labor markets are less concentrated; and (5) exposure to greater import competition from China (the “China Shock”) is associated with more concentrated labor markets. These five results emphasize the role of local-level labor market monopsonies in influencing firm wage-setting.
- J3 - Wages, Compensation, and Labor Costs
- D6 - Welfare Economics