Evolution of Inequality Within Firms

Awarded Scholars:
Fatih Guvenen, University of Minnesota
Nicholas Bloom, Stanford University
Project Date:
Dec 2016
Award Amount:

Since the 1970s, the U.S. economy has witnessed a dramatic rise in income inequality, with much attention focused on the top one percent of earners and the explosion in executive pay.  Recent research has focused on the role that firms and industries play in rising earnings inequality.  For example, much of the increase in wage inequality from 1970 to 2012 can be attributed to disparities in average pay across, rather than within, companies.  This raises the question of why inequality has risen so much between companies. It could be that successful firms have shared rents with their employees, while less successful ones have cut wages. Or, it could be that highly-compensated workers are increasingly clustering in some firms, and lower-paid workers in others.

Economists Fatih Guvenen and Nicholas Bloom will use longitudinal matched employer-employee data sources to evaluate the role of firms in shaping earnings inequality.  First, they will explore the extent to which differences across firms can account for the level and change in earnings inequality across workers. They will decompose earnings into a firm component and a worker component and analyze earnings changes as workers move across firms.  The investigators will also examine the experience of subgroups (such as the top one and the bottom 50 percent), outcomes for establishments versus firms, and the role of movements into and out of the workforce in accounting for the variation in earnings.


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