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Firms, Skills, and Wage Inequality

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  • Roberto Pinheiro
  • Murat Tasci

Abstract

We present a model with search frictions and heterogeneous agents that allows us to decompose the overall increase in US wage inequality in the last 30 years into its within- and between-firm and skill components. We calibrate the model to evaluate how much of the overall rise in wage inequality and its components is explained by different channels. Output distribution per firm-skill pair more than accounts for the observed increase over this period. Parametric identification implies that the worker-specific component is responsible for 85 percent of this, compared to 15 percent that is attributable to firm-level productivity shifts.

Suggested Citation

  • Roberto Pinheiro & Murat Tasci, 2019. "Firms, Skills, and Wage Inequality," Working Papers 17-06R, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:170601
    DOI: 10.26509/frbc-wp-201706r
    Note: Previous title "Organizations, Skills, and Wage Inequality"
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    References listed on IDEAS

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    More about this item

    Keywords

    wage inequality; Multi-agent firms; skill distributions;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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