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The Role of Firms in Wage Inequality

Policy Lessons from a Large Scale Cross-Country Study

Even though firms play a key role in shaping wages, wage inequality and the gender wage gap, firms have so far only featured to a limited extent in the policy debates around these issues. The evidence in this volume shows that around one third of overall wage inequality can be explained by gaps in pay between firms rather than differences in the level and returns to workers’ skills. Gaps in firm pay reflect differences in productivity and wage setting power. To address high wage inequality while fostering high and sustainable growth, worker-centred policies (e.g. education, adult learning) need to be complemented with firm-oriented policies. This involves notably: (1) policies that promote the productivity catch-up of lagging firms, which would not only raise aggregate productivity and wages but also reduce wage inequality; (2) policies that reduce wage gaps at given productivity gaps without limiting efficiency-enhancing reallocation, especially the promotion of worker mobility; and (3) policies that reduce the wage setting power of firms with dominant positions in local labour markets, which would raise wages and reduce wage inequality without adverse effects on employment and output.

Published on December 09, 2021Also available in: French

TABLE OF CONTENTS

Foreword
Executive summary
Overview – The role of firms in wage inequality: Policy lessons from a large-scale cross-country study
Worker skills or firm wage-setting practices? Decomposing wage inequality across 20 OECD countries
The firm-level link between productivity dispersion and wage inequality: A symptom of low job mobility?
Monopoly’s neglected twin? The effect of labour market concentration on wages and inequality
Is it where you work, what you do, or what you get? Unpacking the gender wage gap and its evolution over the life-course
Annexes2 chapters available
Data Annex
Disclaimer annex
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