Firm Differences: Skill Sorting and Software

31 Pages Posted: 10 Jun 2021

See all articles by James E. Bessen

James E. Bessen

Technology & Policy Research Initiative, BU School of Law

Erich Denk

Technology & Policy Research Initiative, BU School of Law

Chen Meng

Technology & Policy Research Initiative, Boston University

Date Written: April 2021

Abstract

Recent research shows that much recent rise in wage inequality comes from growing differences between firms, especially sorting of skilled workers to high-paying firms. This paper explores the role of proprietary software in these changes. Using job ad data, we find that proprietary software is strongly associated with firm wage fixed effects and also with firm skills. Software accounts for half or more of skill sorting across firms. Moreover, both skill sorting and firm wage effects are greater for larger firms. The huge growth in proprietary software helps explain the growth in skill sorting that increases wage inequality.

Keywords: J31, J24, O3

JEL Classification: skill sorting, income inequality, information technology, firm wage differentials

Suggested Citation

Bessen, James E. and Denk, Erich and Meng, Chen, Firm Differences: Skill Sorting and Software (April 2021). Available at SSRN: https://ssrn.com/abstract=3862782 or http://dx.doi.org/10.2139/ssrn.3862782

James E. Bessen (Contact Author)

Technology & Policy Research Initiative, BU School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Erich Denk

Technology & Policy Research Initiative, BU School of Law ( email )

Boston, MA 02215
United States

Chen Meng

Technology & Policy Research Initiative, Boston University ( email )

Boston, MA 02215
United States

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