Using a linked employer-employee dataset covering large firms, we present new evidence on British wage inequality trends over the past two decades. Differences between firms in the average wages they paid did not drive these trends. Between 1996 and 2005, greater wage variance within firms accounted for eighty-six percent of the total increase in wage variance among employees. In the following decade, wage inequality between firms continued to increase, whereas overall wage dispersion decreased. Approximately all the contribution to inequality dynamics from estimated firm-specific factors, throughout the employee wage distribution, disappears after accounting for the changing occupational content of wages.

Using UK employer-employee panel data, we present novel facts on how wages and working hours respond to the business cycle within jobs. Firms reacted to the Great Recession with substantial real wage cuts and by recruiting more part-time workers. A one percentage point increase in the unemployment rate led to an average decline in real hourly wages of 2.6 percent for new hires as well as for job stayers. Hiring hours worked were substantially procyclical, while job-stayer hours were acyclical. These results show that real wages are not rigid and that the labor costs of new hires are especially flexible.

Using a linked employer-employee dataset covering large firms, we present new evidence on British wage inequality trends over the past two decades. Differences between firms in the average wages they paid did not drive these trends. Between 1996 and 2005, greater wage variance within firms accounted for eighty-six percent of the total increase in wage variance among employees. In the following decade, wage inequality between firms continued to increase, whereas overall wage dispersion decreased. Approximately all the contribution to inequality dynamics from estimated firm-specific factors, throughout the employee wage distribution, disappears after accounting for the changing occupational content of wages.

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Using UK employer-employee panel data, we present novel facts on how wages and working hours respond to the business cycle within jobs. Firms reacted to the Great Recession with substantial real wage cuts and by recruiting more part-time workers. A one percentage point increase in the unemployment rate led to an average decline in real hourly wages of 2.6 percent for new hires as well as for job stayers. Hiring hours worked were substantially procyclical, while job-stayer hours were acyclical. These results show that real wages are not rigid and that the labor costs of new hires are especially flexible.