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Workforce composition, productivity and pay: the role of firms in wage inequality

Author

Listed:
  • Chiara Criscuolo
  • Alexander Hijzen
  • Cyrille Schwellnus
  • Erling Barth
  • Wen-Hao Chen
  • Richard Fabling
  • Priscilla Fialho
  • Balazs Stadler
  • Richard Upward
  • Wouter Zwysen
  • Katarzyna Grabska-Romagosa
  • Ryo Kambayashi
  • Timo Leidecker
  • Oskar Nordström Skans
  • Capucine Riom
  • Duncan Roth

Abstract

In many OECD countries, low productivity growth has coincided with rising inequality. Widening wage and productivity gaps between firms may have contributed to both developments. This paper uses a new harmonised cross-country linked employer-employee dataset for 14 OECD countries to analyse the role of firms in wage inequality. The main finding is that, on average across countries, changes in the dispersion of average wages between firms explain about half of the changes in overall wage inequality. Two thirds of these changes in between-firm wage inequality are accounted for by changes in productivity-related premia that firms pay their workers above common market wages. The remaining third can be attributed to changes in workforce composition, including the sorting of high-skilled workers into high-paying firms.

Suggested Citation

  • Chiara Criscuolo & Alexander Hijzen & Cyrille Schwellnus & Erling Barth & Wen-Hao Chen & Richard Fabling & Priscilla Fialho & Balazs Stadler & Richard Upward & Wouter Zwysen & Katarzyna Grabska-Romago, 2020. "Workforce composition, productivity and pay: the role of firms in wage inequality," OECD Economics Department Working Papers 1603, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1603-en
    DOI: 10.1787/52ab4e26-en
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    2. Wouter Zwysen, 2024. "Working apart: Domestic outsourcing in Europe," European Journal of Industrial Relations, , vol. 30(2), pages 221-241, June.
    3. Berlingieri, Giuseppe & Blanchenay, Patrick & Criscuolo, Chiara, 2024. "The great divergence(s)," Research Policy, Elsevier, vol. 53(3).
    4. Han Bu & Zhou Xun & Sha Cai, 2024. "Big data and inter-firm wage disparities: theory and evidence from China," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-36, August.
    5. Forth, John & Theodoropoulos, Nikolaos, 2022. "Earnings Discrimination in the Workplace," GLO Discussion Paper Series 1110, Global Labor Organization (GLO).

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    More about this item

    Keywords

    firm wage premium; productivity; wage inequality;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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