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Firming up inequality

Song, Jae, Price, David J., Guvenen, Fatih and Bloom, Nick (2015) Firming up inequality. CEP Discussion Papers (CEPDP1354). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information: ©2015 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration
O - Economic Development, Technological Change, and Growth > O2 - Development Planning and Policy
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 30 Jun 2015 16:01
Last Modified: 06 May 2019 23:20
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/62587

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