The Review of Economics and Statistics Vol. 104 No. 4 2022
Trade Shocks, Firm Hierarchies, and Wage Inequality
Abstract
This paper shows robust effects of trade shocks on within-firm wage inequality through changes in firm hierarchies. It uses two distinct research designs—one considering firm-level shocks to foreign demand and transportation costs, the other analyzing the Muslim boycott of Danish exports after the 2006 “cartoon crisis.” Consistent with knowledge-based and incentive-based hierarchy models, trade shocks affect organizational choices through production scale. Adding a hierarchy layer increases inequality throughout the organization, particularly widening the 90-50 wage gap and pay differences between top and bottom layers. Delayering after the boycott leads to wage compression through wage cuts, demotions, and employee turnover.
- DOI
- 10.1162/rest_a_00998
- Volume
- 104
- Issue
- 4
- Pages
- 652-667
- Language
- en
- Sources
- openalex crossref