Rising between-workplace inequalities in high-income countries

Donald Tomaskovic-Devey
Olivier Godechot, Mirna Safi,
Anthony Rainey, Dustin Avent-Holt, Nina Bandelj, István Boza, David Cort, Gergely Hajdu, Martin Hällsten, Lasse Folke Henriksen, Are Skeie Hermansen, Feng Hou, Jiwook Jung, Aleksandra Kanjuo-Mrčela, Joe King, Naomi Kodama, Tali Kristal, Alena Křížková, Zoltán Lippényi, Silvia Maja Melzer, Eunmi Mun, Andrew Penner, Trond Petersen, Andreja Poje, Max Thaning, Zaibu Tufail

Proceedings of the National Academy of Sciences

April 2020, 201918249; DOI: 10.1073/pnas.1918249117 (Open Access)

Findings and proposals
Understanding the causes of rising inequality is of concern in many countries. Using administrative data, the paper finds that the share of inequality that is between workplaces is growing in 12 of 14 countries examined, and in no country has it fallen. Countries with declining employment protections see growth in both between- and within-workplace inequalities, but this impact is stronger for between-workplace inequalities. These results suggest that to reduce market income inequality requires policies that raise the bargaining power of lower-skilled workers. The widespread rise in between-workplace inequality additionally suggests policy responses that target the increasing market power of firms in concentrated markets as well as curb the ability of powerful firms to outsource low skill employment.

Comparative structural study across 14 countries
Earnings inequalities have risen in many high-income countries. Less clear are the linkages between rising income inequality and workplace dynamics, how within- and between-workplace inequality varies across countries, and to what extent these inequalities are moderated by national labor market institutions.

In order to describe changes in the initial between- and within-firm market income distribution the paper analyzes administrative records for 2,000,000,000+ job years nested within 50,000,000+ workplace years for 14 high-income countries in North America, Scandinavia, Continental and Eastern Europe, the Middle East, and East Asia.

Authors find that countries vary a great deal in their levels and trends in earnings inequality but that the between-workplace share of wage inequality is growing in almost all countries examined and is in no country declining. We also find that earnings inequalities and the share of between-workplace inequalities are lower and grew less strongly in countries with stronger institutional employment protections and rose faster when these labor market protections weakened.

These findings suggest that firm-level restructuring and increasing wage inequalities between workplaces are more central contributors to rising income inequality than previously recognized.

Fig. 2
The proportion of total inequality that is between firms for the total (Left), private (Middle), and public sectors (Right). Estimates are for all jobs except for South Korea, which are full-time jobs only. Japan, South Korea, and USA-Song only have private sector estimates. South Korea is missing for 2005.

Yannick Savina (OSC) produced the figures used in the paper