Working Paper

Firms, Skills, and Wage Inequality


Abstract: We present a model with search frictions and heterogeneous agents that allows us to decompose the overall increase in US wage inequality in the last 30 years into its within- and between-firm and skill components. We calibrate the model to evaluate how much of the overall rise in wage inequality and its components is explained by different channels. Output distribution per firm-skill pair more than accounts for the observed increase over this period. Parametric identification implies that the worker-specific component is responsible for 85 percent of this, compared to 15 percent that is attributable to firm-level productivity shifts.

Keywords: wage inequality; Multi-agent firms; skill distributions;

JEL Classification: D02; D21; J2; J3;

https://doi.org/10.26509/frbc-wp-201706r

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2019-04-19

Number: 201706R

Note: Previous title "Organizations, Skills, and Wage Inequality"