Periodic Reporting for period 3 - FirmIneq (Wage inequality within and across firms: The role of market forces, government and firm policies)
Okres sprawozdawczy: 2022-06-01 do 2023-11-30
The goal of my research is to first, shed new light on the sources behind the rising overall inequalities and the persistent gender inequalities in the labour market and second, to evaluate the effectiveness of government and firm policies aimed at tackling these inequalities. Motivated by the following two observations, I put firms at the centre of the analysis. First, existing research has shown that wages have become increasingly dependent on where workers work, rather than on the skills that workers possess. And second, firms have a crucial role to play in tackling gender inequalities, by providing policies and creating a work environment that support mothers in balancing family and career. My research is organized around three themes. All themes draw on four decades of German social security records comprising the near universe of workers and establishments, which I augment with survey data on firms.
In Project A, I investigate how skill-biased technological change contributed to the increasing wage inequality between firms, by changing which firms operate in the market (selection) and how employment is distributed across low and high productivity firms (reallocation), and by differentially affecting wage growth across firm types (differential wage growth).
In Part B, I investigate the effects of two prominent governmental policies, the introduction of a minimum wage policy and changes in business taxation, affect wage dispersion within and between firms.
In Part C, I shift the focus to one specific aspect of inequality—gaps in employment and wages between men and women. I investigate the role of co-workers and firm-provided family-friendly policies in fostering mothers’ labour market careers post-birth, and ultimately in reducing labour market inequalities between men and women.
In Project A, I investigate how skill-biased technological change contributed to the increasing wage inequality between firms, by changing which firms operate in the market (selection) and how employment is distributed across low and high productivity firms (reallocation), and by differentially affecting wage growth across firm types (differential wage growth).
In Part B, I investigate the effects of two prominent governmental policies, the introduction of a minimum wage policy and changes in business taxation, affect wage dispersion within and between firms.
In Part C, I shift the focus to one specific aspect of inequality—gaps in employment and wages between men and women. I investigate the role of co-workers and firm-provided family-friendly policies in fostering mothers’ labour market careers post-birth, and ultimately in reducing labour market inequalities between men and women.
In part A, my co-authors and I have focused on the role of skill-biased technological change in accounting for the rise in wage inequality observed in many developed countries. We argue that skill-biased technological change not only affects wage gaps between skill groups, but also increases wage inequality within skill groups, across workers in different firms. We show that an industry-wide skill-biased technological change shock will increase between-firm wage inequality within the industry through three main channels: increased employment concentration in more productive firms, increased wage dispersion between firms for workers of the same skill type, and increased segregation and sorting of skilled workers in more productive firms. Using rich administrative matched employer-employee data from Germany, we provide empirical evidence of establishment-level patterns that are in line with the predictions of the model. We further document that industries with more technological adoption exhibit particularly pronounced patterns along the dimensions highlighted by the model.
In other work, my co-authors and I focus on more recent trends in wage inequality in Germany, in the aftermath of the Great Recession. We show that from 2010 onwards, wage inequality at the bottom of the wage distribution has declined in Germany. We partially attribute this trend to an exceptionally tight labor market which fostered job-to-job mobility from lower-paying to higher-paying firms, and reduced firm's monopsony power in the labor market.
In part B, my co-authors and I have focused on the effects of the introduction of the minimum wage in Germany in 2015 on the labor market. We find that the minimum wage raised wages at the bottom of the wage distribution without lowering employment. The minimum wage also drove small businesses out of the market and re-allocated low-wage workers from smaller, lower paying to larger, higher paying establishments. As such, the minimum wage helped to reduce wage inequality not only within but also between firms.
In other work, my co-authors and I have investigated the effects of increases in business tax rates (i.e. taxes levied on firms’ profits) on firms, workers and the wider economy. Leveraging more than 4,800 persistent changes in local business tax rates levied on firms’ profits, we find that an increase in the tax rate by one percentage point reduces a municipality’s employment by 1.17 percent, the capital stock by 4 percent, wages by 0.52 percent, and the number of establishments by 0.6 percent. Workers' wages in the local labor markets decline for two reasons: directly through wage declines within affected establishments and indirectly through a decline in upward job-to-job mobility induced by a sharp reduction in hiring of larger and higher-paying establishments.
In Part C, my co-authors have focused on the role of co-workers in fostering mothers’ labour market careers post-birth. We find that colleagues who grew up in the more gender-egalitarian East-German environment induce West German women from more traditional backgrounds to return to work faster and work longer hours after childbirth.
In other work, my co-authors and I have investigated which firms provide childcare to their workers, and their motives behind doing so.
In other work, my co-authors and I focus on more recent trends in wage inequality in Germany, in the aftermath of the Great Recession. We show that from 2010 onwards, wage inequality at the bottom of the wage distribution has declined in Germany. We partially attribute this trend to an exceptionally tight labor market which fostered job-to-job mobility from lower-paying to higher-paying firms, and reduced firm's monopsony power in the labor market.
In part B, my co-authors and I have focused on the effects of the introduction of the minimum wage in Germany in 2015 on the labor market. We find that the minimum wage raised wages at the bottom of the wage distribution without lowering employment. The minimum wage also drove small businesses out of the market and re-allocated low-wage workers from smaller, lower paying to larger, higher paying establishments. As such, the minimum wage helped to reduce wage inequality not only within but also between firms.
In other work, my co-authors and I have investigated the effects of increases in business tax rates (i.e. taxes levied on firms’ profits) on firms, workers and the wider economy. Leveraging more than 4,800 persistent changes in local business tax rates levied on firms’ profits, we find that an increase in the tax rate by one percentage point reduces a municipality’s employment by 1.17 percent, the capital stock by 4 percent, wages by 0.52 percent, and the number of establishments by 0.6 percent. Workers' wages in the local labor markets decline for two reasons: directly through wage declines within affected establishments and indirectly through a decline in upward job-to-job mobility induced by a sharp reduction in hiring of larger and higher-paying establishments.
In Part C, my co-authors have focused on the role of co-workers in fostering mothers’ labour market careers post-birth. We find that colleagues who grew up in the more gender-egalitarian East-German environment induce West German women from more traditional backgrounds to return to work faster and work longer hours after childbirth.
In other work, my co-authors and I have investigated which firms provide childcare to their workers, and their motives behind doing so.
My research so far has produced a number of novel insights.
Part A:
- Our findings highlight that skill-biased technological change (STC) does not only lead to increased wage gaps between skill groups but also within skill groups, across firms. As such, STC can also account for the important empirical finding that wages have become increasingly dependent on the firm where workers work, rather than the skills workers possess.
- They also highlight that statements such as “Wage inequality will keep increasing due to technological change” may not be warranted. Over the past 10-15 years, Germany has experienced a decline in wage inequality at the bottom of the wage distribution, which is in part driven by increases in upward job-to-job mobility and reduced monopsony power of firms.
Part B:
- Our findings highlight that minimum wage policies can be effective at reducing wage inequalities in the labor market without lowering employment, both within and between firms.
- Our findings further highlight that increases in tax rates levied on firms’ profits is unlikely to make workers better off. On the contrary: an increase in business tax rates lowers within-firm employment and wage growth, in particular among larger, higher-paying firms. Yet, increases in business tax rates also help to generate tax revenues, and likely lead to smaller employment and wage losses than increases in payroll tax rates.
Part C:
- Our findings are in line with the hypothesis that women’s beliefs and values as regards to what “mothers are supposed to do” and what it means to be “a good mother” are to some extent malleable. Specifically, exposure to colleagues who grew up in a more gender-egalitarian environment and who hold more gender-egalitarian beliefs and values induces women from more traditional backgrounds to return to work faster and work longer hours after childbirth.
- Our findings highlight that firm-provided childcare speeds up mothers’ return-to-work after childbirth, with larger effects for better educated and higher paid mothers. Firm-provided childcare also helps firms to retain and attract women in child-bearing age. As such, firms play an important role in reducing gender inequalities in the labor market.
Part A:
- Our findings highlight that skill-biased technological change (STC) does not only lead to increased wage gaps between skill groups but also within skill groups, across firms. As such, STC can also account for the important empirical finding that wages have become increasingly dependent on the firm where workers work, rather than the skills workers possess.
- They also highlight that statements such as “Wage inequality will keep increasing due to technological change” may not be warranted. Over the past 10-15 years, Germany has experienced a decline in wage inequality at the bottom of the wage distribution, which is in part driven by increases in upward job-to-job mobility and reduced monopsony power of firms.
Part B:
- Our findings highlight that minimum wage policies can be effective at reducing wage inequalities in the labor market without lowering employment, both within and between firms.
- Our findings further highlight that increases in tax rates levied on firms’ profits is unlikely to make workers better off. On the contrary: an increase in business tax rates lowers within-firm employment and wage growth, in particular among larger, higher-paying firms. Yet, increases in business tax rates also help to generate tax revenues, and likely lead to smaller employment and wage losses than increases in payroll tax rates.
Part C:
- Our findings are in line with the hypothesis that women’s beliefs and values as regards to what “mothers are supposed to do” and what it means to be “a good mother” are to some extent malleable. Specifically, exposure to colleagues who grew up in a more gender-egalitarian environment and who hold more gender-egalitarian beliefs and values induces women from more traditional backgrounds to return to work faster and work longer hours after childbirth.
- Our findings highlight that firm-provided childcare speeds up mothers’ return-to-work after childbirth, with larger effects for better educated and higher paid mothers. Firm-provided childcare also helps firms to retain and attract women in child-bearing age. As such, firms play an important role in reducing gender inequalities in the labor market.