This conference is supported by Grant #2020-2258 from the Smith Richardson Foundation
Arellano-Bover and Saltiel present evidence consistent with large disparities across firms in the on-the-job learning their young employees experience, using administrative datasets from Brazil and Italy. The researchers categorize firms into discrete “classes” using a clustering methodology which groups together firms with similar distributions of unexplained earnings growth. Equipped with this categorization of firms—which their conceptual framework interprets as skill-learning classes—Arellano-Bover and Saltiel document three main results. First, Mincerian returns to experience vary substantially across experiences acquired in different firm classes, and the magnitude of this heterogeneity is associated with significant shifts across the distribution of early-career wage growth. Second, past experience at firms with better on-the-job learning is associated with subsequent jobs featuring greater nonroutine task content. Third, firms’ observable characteristics only mildly predict on-the-job learning opportunities. Their findings hold among involuntarily displaced workers who have no seniority at their new jobs, which is consistent with a portable skills interpretation but hard to reconcile with alternative sources of heterogeneous within-firm wage growth.
Most of the rise in overall earnings inequality is accounted for by rising between industry inequality from about ten percent of 4-digit NAICS industries. These industries are in the tails of the earnings distribution. For example, high-paying industries in the top ten percent such as Software Publishers have exhibited an increasing size premium along with a rising share of employment at especially the largest (mega) firms. The rising size-earnings premium in these industries is accounted for by both an increase in the average AKM firm premium and the average AKM person effect. Low-paying industries in the top ten percent such as Restaurants and Other Eating Places have exhibited a decline in the size-earnings premium along with a rising share of employment at the mega firms. The declining size premium in these industries is accounted for by both a decrease in the average AKM firm premium and the average AKM person effect. Strikingly, the remaining ninety percent of industries contribute little to between industry earnings inequality and exhibit little change in the employment share at mega firms. Haltiwanger, Hyatt, and Spletzer thus find that the rise of mega firms in a relatively small number of industries plays a critical role in rising earnings dispersion across firms and industries. The researchers also find that increased sorting and segregation of workers as well as rising dispersion in average firm premium are important for the rising between industry dispersion in the dominant ten percent of industries. Importantly, it is increased sorting and segregation between industries rather than within industries that matters.
What determines the joint dynamics of aggregate employment and wages over the medium run? This classic question in macroeconomics has received renewed attention since the Great Recession, when real wages did not fall despite a crash in employment. This paper proposes a microfoundation for the medium-run dynamics of aggregate labor markets which relies on worker heterogeneity. I develop a model in which workers differ in their skills for various occupations, sectors employ occupations with different weights in production, and skills are imperfectly transferable. When shocks are concentrated in particular industries, the extent to which workers can reallocate across the economy determines aggregate labor market dynamics. I apply the model to study the recessions of 2008-09 and 1990-91. I estimate the distribution of worker skills using two-period panel data prior to each of these recessions and find that skills became less transferable between the 1980s and 2000s. Shocking the estimated model with industry-level TFP series replicates the increase in aggregate wages in 2008-09, and decline in 1990-91. The model implies that if either the composition of industry shocks or the distribution of skills in the economy had been the same in the 2008-09 recession
as in the 1990-91 recession, real wages would have fallen, while employment would have declined less. The declining industries during the 2008-09 all employed a similar mix of skills, which induced many low-skill workers to leave the labor force and limited downward wage pressure on the rest of the economy. Finally, the model inspires a novel reduced form method to correct aggregate wages for selection in the human capital of workers, which accounts for cyclical job downgrading by focusing on the wage movements of occupation-stayers. This correction recovers pro-cyclical wages, suggesting the changing composition of the workforce was crucial for aggregate wage dynamics during the Great Recession.
The growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of "human capitalists." Eisfeldt, Falato, and Xiaolan show that high-skilled labor earns substantial income in the form of equity claims to firms' future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing 40% of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on factor shares. Including equity-based compensation in high-skilled labor income reduces the total decline in labor income share relative to value added by over 30%. It also eliminates the majority of the decline in the high-skilled labor share. Only by including equity pay does their structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb and Douglas (1928). Eisfeldt, Falato, and Xiaolan provide additional regression evidence of such complementarity.
This paper was distributed as Working Paper 28815, where an updated version may be available.
A recent body of literature has documented evidence of increasing employer market power in the US. Bagga develops an equilibrium model of the labor market to explain its effect on aggregate outcomes such as wage growth and job-to-job transitions. Bagga introduces two ingredients to a random search model with on-the-job search: First, there exists a finite number of firms that differ in productivity. Second, firms exert market power by excluding their vacancies from the set of outside offers faced by their employees. The combined effect of both features of the model is to reduce the value of workers’ outside options, thereby reducing wages and worker mobility in equilibrium. The researcher calibrates the model and evaluate its performance in generating key labor market moments for the US economy. Finally, Bagga examines the model's central predictions using the public-use data from the Longitudinal Employer-Household Dynamics (LEHD), Business Dynamics Statistics (BDS), and the Survey of Income and Program Participation (SIPP). Bagga documents that less competitive labor markets, characterized by a lower number of firms per worker, are associated with reduced measures of labor market dynamism and average wages.
Schubert, Stansbury, and Taska study the effect of within-occupation employer concentration and outside occupation job options on wages in the US, identifying outside-occupation options using new occupational mobility data from 16 million resumes. Using shift-share instruments to identify plausibly exogenous local variation, the researchers find that moving from the median to 95th percentile of employer concentration reduces wages by 3% on average and by 6% for workers in the lowest quartile of outward occupational mobility. Their findings imply that policymakers should take employer concentration seriously, but that measures of employer concentration -- typically calculated for single occupations -- should be considered alongside the availability of outside-occupation options.
Low unionization rates, a falling real federal minimum wage, and prevalent noncompetes characterize low-wage jobs in the United States and contribute to growing inequality. In recent years, a number of private employers have opted to institute or raise company-wide minimum wages for their employees, sometimes in response to public pressure. To what extent do wage-setting changes at major employers spill over to other employers, and what are the labor market effects of these policies? In this paper, Derenoncourt, Noelke, and Weil study recent minimum wages by Amazon, Walmart, Target, and Costco using data from millions of online job ads and employee surveys. The researchers document that these policies induced wage increases at low-wage jobs at other employers. In the case of Amazon, which instituted a $15 minimum wage in October 2018, their estimates imply that a 10% increase in Amazon’s advertised hourly wages led to an average increase of 2.6% among other employers in the same commuting zone. Using the CPS, Derenoncourt, Noelke, and Weil estimate wage increases in exposed jobs in line with their magnitudes from employee surveys and find that major employer minimum wage policies led to small but precisely estimated declines in employment, with employment elasticities ranging from -.04 to -.13.