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The evolution of inequality in productivity and wages : panel data evidence

Salvanes, Kjell Gunnar; Faggio, Giulia; Reenen, John Van
Working paper
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URI
http://hdl.handle.net/11250/163316
Date
2007-08
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  • Discussion papers (SAM) [586]
Abstract
There has been a remarkable increase in wage inequality in the US, UK and many

other countries over the past three decades. A significant part of this appears to be

within observable groups (such as age-gender-skill cells). A generally untested

implication of many theories rationalizing the growth of within-group inequality is

that firm-level productivity dispersion should also have increased. Since the relevant

data do not exist in the US we utilize a UK longitudinal panel dataset covering the

manufacturing and non-manufacturing sectors since the early 1980s. We find

evidence that productivity inequality has increased. Existing studies have

underestimated this phenomenon because they use manufacturing data where which

has shrunk rapidly. Most of the increase in individual wage inequality has occurred

because of an increase in inequality between firms (and within industries). Increased

productivity dispersion appears to be linked with new technologies as suggested by

models such as Caselli (1999) and is not primarily due to an increase in transitory shocks, greater sorting or entry/exit dynamics.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2007:19

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