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Wage Inequality and Firm Growth

51 Pages Posted: 20 Dec 2014 Last revised: 2 Feb 2017

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Paige Ouimet

University of North Carolina at Chapel Hill

Elena Simintzi

University of British Columbia

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 2015

Abstract

We examine how within-firm skill premia – wage differentials associated with jobs involving different skill requirements – vary both across firms and over time. Our firm-level results mirror patterns found in aggregate wage trends, except that we find them with regard to increases in firm size. In particular, we find that wage differentials between high- and either medium- or low-skill jobs increase with firm size, while those between medium- and low-skill jobs are either invariant to firm size or, if anything, slightly decreasing. We find the same pattern within firms over time, suggesting that rising wage inequality – even nuanced patterns, such as divergent trends in upper- and lower-tail inequality – may be related to firm growth. We explore two possible channels: i) wages associated with “routine” job tasks are relatively lower in larger firms due to a higher degree of automation in these firms, and ii) larger firms pay relatively lower entry-level managerial wages in return for providing better career opportunities. Lastly, we document a strong and positive relation between within-country variation in firm growth and rising wage inequality for a broad set of developed countries. In fact, our results suggest that part of what may be perceived as a global trend toward more wage inequality may be driven by an increase in employment by the largest firms in the economy.

Suggested Citation

Mueller, Holger M. and Ouimet, Paige and Simintzi, Elena, Wage Inequality and Firm Growth (February 1, 2015). Available at SSRN: https://ssrn.com/abstract=2540321 or http://dx.doi.org/10.2139/ssrn.2540321

Holger Mueller

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
New York, NY 10012-1126
United States
212-998-0341 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~hmueller/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Paige Ouimet (Contact Author)

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Elena Simintzi

University of British Columbia ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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