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The evolution of inequality in productivity and wages: panel data evidence

Faggio, Giulia, Salvanes, Kjell G. and Van Reenen, John ORCID: 0000-0001-9153-2907 (2010) The evolution of inequality in productivity and wages: panel data evidence. Industrial and Corporate Change, 19 (6). pp. 1919-1951. ISSN 0960-6491

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Identification Number: 10.1093/icc/dtq058


There has been a remarkable increase in wage inequality in the United States, UK, and many other countries over the past three decades. A significant part of this appears to be within observable groups (such as experience-gender-skill cells). A generally untested implication of many theories rationalizing the growth of within-group inequality is that firm-level productivity dispersion should also have increased. We utilize a UK firm-level panel dataset covering the manufacturing and non-manufacturing sectors since the early 1980s. We find evidence that productivity inequality has increased. Existing studies have typically underestimated this phenomenon because they focus only on the manufacturing sector where inequality has risen much less and which has shrunk rapidly. Most of the increase in individual wage inequality can be accounted for by an increase in inequality between firms (and within industries). Increased productivity dispersion appears to be linked with new technologies as suggested by models such as Caselli (1999, Am. Econ. Rev., 89, 78-102) and is not primarily due to an increase in transitory shocks, greater sorting or entry/exit dynamics.

Item Type: Article
Official URL:
Additional Information: © 2010 The Authors. Published by Oxford University Press on behalf of Associazione ICC
Divisions: Economics
Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
JEL classification: D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives
Date Deposited: 07 Mar 2011 16:22
Last Modified: 17 Jun 2024 21:09

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