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Skill-Bias, Firm-Bias, and Wage Inequality

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Abstract

Changes to occupational and sectoral labor demand are thought to have been skill- biased, raising the skill premium and contributing to wage inequality. I show that these changes have also been firm-biased, impacting the distribution of firm-specific wage components such as shared rents. I characterize firm-bias empirically using German matched employer-employee data, and I quantify its 1993-2017 impact by structurally estimating a search-based model of occupational assignment with industry segmentation. While firm-bias is only marginally important in isolation, interactions with skill-bias - capturing demand's effect on the assortativity of labor markets - account for half of the rise in wage variance from occupational polarization and manufacturing decline. These interactions result in skill-bias being a poor overall predictor of wage outcomes, while policies that target firm rent-sharing can induce skill-biased demand shocks sufficiently strong as to reverse their effect on aggregate inequality.

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  • Mouton, Andre, 2024. "Skill-Bias, Firm-Bias, and Wage Inequality," Working Papers 111, Wake Forest University, Economics Department.
    • Handle: RePEc:ris:wfuewp:0111
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    More about this item

    Keywords

    Wage Inequality; Labor Demand; Skill-Bias; Firm Heterogeneity;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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