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Firms and Labor Market Inequality: Evidence and Some Theory

David Card^1,2,3; Ana Rute Cardoso^4,5; Joerg Heining⁶; Patrick Kline⁶

¹ Consejo Superior de Investigaciones Científicas · ² Institut d'Anàlisi Econòmica · ³ Barcelona School of Economics · ⁴ Institut für Arbeitsmarkt und Berufsforschung · ⁵ Employment Agency · ⁶ University of California, Berkeley

We synthesize two related literatures on firm-level drivers of wage inequality. Studies of rent sharing that use matched worker-firm data find elasticities of wages with respect to value added per worker in the range of 0.05–0.15. Studies of wage determination with worker and firm fixed effects typically find that firm-specific premiums explain 20% of overall wage variation. To interpret these findings, we develop a model of wage setting in which workers have idiosyncratic tastes for different workplaces. Simple versions of this model can rationalize standard fixed effects specifications and also match the typical rent-sharing elasticities in the literature.

DOI

10.1086/694153

Volume

36 (S1)

Pages

S13-S70

Language

en

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