Firms' Wage Policies and the Rise in Labor Market Inequality: The Case of Portugal

Cardoso, Ana Rute

doi:10.1177/001979399905300105

Cited by 21 publications

(24 citation statements)

References 26 publications

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“…In fact, an extensive literature has documented the existence of substantial wage di erences across plants and establishments (Slichter, 1950;Davis and Haltiwanger, 1991;Groshen, 1991;Bernard and Jensen, 1995;Cardoso, 1997;Cardoso, 1999;Skans, Edin, and Holmlund, 2009;Song et al, 2015) that are strongly correlated with basic measures of productivity. Nevertheless, economists have been reluctant to interpret these di erences as wage premiums or rents, since it has been di cult to know how unobserved worker quality di ers across plants.…”

Section: This Reviewmentioning

confidence: 99%

Firms and Labor Market Inequality: Evidence and Some Theory

Card¹,

Cardoso²,

Heining

et al. 2018

Journal of Labor Economics

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534

173

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We review the literature on firm-level drivers of labor market inequality. There is strong evidence from a variety of fields that standard measures of productivity -like output per worker or total factor productivity -vary substantially across firms, even within narrowlydefined industries. Several recent studies note that rising trends in the dispersion of productivity across firms mirror the trends in the wage inequality across workers. Two distinct literatures have searched for a more direct link between these two phenomena. The first examines how wages are affected by differences in employer productivity. Studies that focus on firm-specific productivity shocks and control for the non-random sorting of workers to more and less productive firms typically find that a 10% increase in value-added per worker leads to somewhere between a 0.5% and 1.5% increase in wages. A second literature focuses on firm-specific wage premiums, using the wage outcomes of job changers. This literature also concludes that firm pay setting is important for wage inequality, with many studies finding that firm wage effects contribute approximately 20% of the overall variance of wages. To interpret these findings, we develop a model where workplace environments are viewed as imperfect substitutes by workers, and firms set wages with some degree of market power. We show that simple versions of this model can readily match the stylized empirical findings in the literature regarding rent-sharing elasticities and the structure of firm-specific pay premiums. Does where you work determine how much you earn? In the standard competitive labor market model rms take market wages as given and rm-speci c heterogeneity in uences who is hired, but not the level of pay of any particular worker. The pervasive in uence of this perspective is evident in major reviews of the wage inequality literature (Katz and Autor, 1999;Goldin and Katz, 2009;Acemoglu and Autor, 2011), which focus almost exclusively on the role of market-level skill prices in driving inequality trends. 1 This view stands in stark contrast to the Industrial Organization literature, which typically models markets as imperfectly competitive (Tirole, 1988;Pakes, 2016). Though economists seem to agree that part of the variation in the prices of cars and breakfast cereal is due to factors other than marginal cost, the possibility that wages re ect anything other than skill remains highly controversial. Terms of use: Documents inThe gr...

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Section: This Reviewmentioning

confidence: 99%

Firms and Labor Market Inequality: Evidence and Some Theory

Card¹,

Cardoso²,

Heining

et al. 2018

Journal of Labor Economics

Self Cite

534

173

View full text Add to dashboard Cite

show abstract

“…More recently, Lazear and Shaw (2009a) provide a collection of country studies analysing the role of the firm in wage-setting. Finally, Cardoso (1997) examines both worker and employer attributes as sources of wage dispersion and of its rising trend in Portugal during the 1980s and early 1990s, and concludes that over 60% of the total dispersion in hourly wages is accounted for by between-firm variation. Barth et al (2016) focus on the role of the firm in the rise of earnings inequality in the USA in recent decades.…”

Section: Literature Reviewmentioning

confidence: 99%

“…They find that the fall in between-firm inequality contributed more to the fall in overall inequality over the whole period. Finally, Cardoso (1997) examines both worker and employer attributes as sources of wage dispersion and of its rising trend in Portugal during the 1980s and early 1990s, and concludes that over 60% of the total dispersion in hourly wages is accounted for by between-firm variation.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The increasing availability of matched employer-employee datasets has allowed researchers to examine the role of firms in the wage-setting process (Abowd et al 1999;Cardoso 1997Cardoso , 1999Cardoso , 2000Dustmann and Meghir 2005;Lazear and Shaw 2009a;Sørensen and Vejlin 2011;Card et al 2013). Typically, these studies find a significant role for both worker-and firm-level characteristics in wage levels, but a stronger role for individual characteristics in determining wage changes.…”

Section: Introductionmentioning

confidence: 99%

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How Important are Firms in Explaining Wage Changes During a Recession?

2019

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During the Great Recession, many Irish workers experienced nominal earnings reductions, with about 50% of private sector employees receiving pay cuts at the height of the crisis. However, at the same time, a substantial minority of workers continued to receive pay increases. In this paper we use a unique dataset containing earnings on every worker in Ireland to examine the relative roles of worker and firm characteristics in explaining this heterogeneity in earnings dynamics. Our results show that between-firm effects play a small role in determining pay changes in Ireland. Although between-firm effects became more important in the peak year of the economic crisis, the vast majority of earnings changes continued to be driven by within-firm forces. These findings raise a number of important questions about the role of morale and fairness in the wage-setting process.

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“…In so doing, our aim is to substitute a firm fixed-effect regression by a 'firm factor effect' regression that may account for qualitative aspects of firms' wage policies, human capital and organizational features. In a sense, following Nordman (2004, 2006), we generalize the approach developed in Cardoso (1999) who regresses the firms' fixed effects on different variables. For our purpose, the first 10 computed factors concentrate most of the relevant information about the firms' characteristics.…”

Section: Notesmentioning

confidence: 99%

Evidence on the glass ceiling effect in France using matched worker-firm data

Jellal

Nordman²,

Wolff

2008

Applied Economics

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In this article, we investigate the relevance of the glass ceiling hypothesis in France, according to which there exist larger gender wage gaps at the upper tail of the wage distribution. Using a matched worker-firm data set of about 1 30 000 employees and 14 000 employers, we estimate quantile regressions and rely on a principal component analysis to summarize information specific to the firms. Our different results show that accounting for firm-related characteristics reduces the gender earnings gap at the top of the distribution, but the latter still remains much higher at the top than at the bottom. Furthermore, a quantile decomposition shows that the gender wage gap is mainly due to differences in the returns to observed characteristics rather than in differences in characteristics between men and women.

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Firms' Wage Policies and the Rise in Labor Market Inequality: The Case of Portugal

Cited by 21 publications

References 26 publications

Firms and Labor Market Inequality: Evidence and Some Theory

Firms and Labor Market Inequality: Evidence and Some Theory

How Important are Firms in Explaining Wage Changes During a Recession?

Evidence on the glass ceiling effect in France using matched worker-firm data

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