Wage inequality has increased dramatically in the US since the 1970s, largely driven by within-firm earnings inequality. This column uses combined data from three large micro datasets to study the drivers and implications of within-firm inequality. It shows that employees across the entire wage distribution gain from higher firm productivity, but these gains are unequally distributed. The top 1% of employees by pay have a fourfold higher response to productivity than the bottom 1%. Aggregating these effects suggests that the increase in labour productivity over 1980-2013 can explain around 40% of the rise in the gap between CEO and median worker pay.
Nicholas Bloom, Scott W. Ohlmacher, Cristina J. Tello-Trillo and Melanie Wallskog
7 July 2024
Vox EU
https://cepr.org/voxeu/columns/effect-productivity-growth-within-firm-inequality
This work is published under POID and the CEP's Growth programme.