Firming up inequality
BibTeX
@article{song2019firming,
title={Firming up inequality},
author={Song, Jae and Price, David J and Guvenen, Fatih and Bloom, Nicholas and Von Wachter, Till},
journal={The Quarterly journal of economics},
volume={134},
number={1},
pages={1--50},
year={2019},
publisher={Oxford University Press}
}
Abstract
We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred due to a rise in the dispersion of average earnings between firms. However, this rising between-firm variance is not accounted for by the firms themselves but by a widening gap between firms in the composition of their workers. This compositional change can be split into two roughly equal parts: high-wage workers became increasingly likely to work in high-wage firms (i.e., sorting increased), and high-wage workers became increasingly likely to work with each other (i.e., segregation rose). In contrast, we do not find a rise in the variance of firm-specific pay once we control for the worker composition in firms. Finally, we find that two-thirds of the rise in the within-firm variance of earnings occurred within mega (10,000+ employee) firms, which saw a particularly large increase in the variance of earnings compared with smaller firms.
My Notes
Prof Guvenen’s presentation
- 70-100% of of rise in inequality is between firms.
- between-firm only 50-60% for
- Mage firms (10k+ employees)
- Top 0.5% earning (above 0.5 million)
- What explains?
- half segregation, half sorting
- firm pay differences contribute very little
- so really a story about worker skill dispersion.
At high end, gap between productivity growth and earnings growth. Isn’t seen at the low end?
Trend seems to be global.
For firms 20-10000 employees (most firms), increase in variance almost entirely between firm. Only in large firms do we see increase within firms. For sub-1000k employees, basically 100% between-firm.
Within-firm CEO pay up 10% proportionally. Typical news story compares median pay of Fortune 500 CEO to median of all workers.
Bottom fell out in the large firms.
Stock options count as income in new dataset.
Silly analogy: It’s true that height has increased over time. And it’s true that there’s a sex-based height gap. But comparing growth in NBA player height to average woman’s height would exaggerate this effect.
At top, worker pay directly connected to stock price. High level workers more like shareholders. Connection decreases as you go down the worker pay ranking.
49 industry classification.
Is it between occupation within a firm, or across occupation. EG does google hire the best janitor in the country, or do they outsource janitors? Suggestive: occupational composition shrank over time.
Segregation happening in many dimensions in society. Education differences between school districts. Kansas city. Stereotype of KS side as nursery. Landslide counties increasing.