The Evolution of Inequality in Productivity and Wages: Panel Data Evidence
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. The relevant data for the US is problematic, so we utilize a UK 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 increased dispersion because they use data from the manufacturing sector which has been in rapid decline. 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.
We would like to thank David Card, Francesco Caselli, Richard Freeman, Steve Nickell, Ariel Pakes, Justin Wolfers and participants at seminars at LSE, Princeton, the UK Treasury and the Royal Economic Society Conference for helpful comments. We acknowledge funding from the Economic and Social Research Council through grant RES-000-22-1392 and the Centre for Economic Performance. Corresponding author: email@example.com. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Giulia Faggio & Kjell G. Salvanes & John Van Reenen, 2010. "The evolution of inequality in productivity and wages: panel data evidence," Industrial and Corporate Change, Oxford University Press, vol. 19(6), pages 1919-1951, December. citation courtesy of