Wage inequality has increased dramatically in the US since the 1970s, largely driven by within-firm earnings inequality. This column uses combined data from three large micro datasets to study the drivers and implications of within-firm inequality. It shows that employees across the entire wage distribution gain from higher firm productivity, but these gains are unequally distributed. The top 1% of employees by pay have a fourfold higher response to productivity than the bottom 1%. Aggregating these effects suggests that the increase in labour productivity over 1980-2013 can explain around 40% of the rise in the gap between CEO and median worker pay.

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7 July 2024

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Vox EU

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https://cepr.org/voxeu/columns/effect-productivity-growth-within-firm-inequality

This Blog is published under the centre's Growth programme.