Understanding the causes of rising inequality is of concern in many countries. Using administrative data, we find 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.Abstract
It is well documented that 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 we analyze 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. We 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. Our findings suggest that firm-level restructuring and increasing wage inequalities between workplaces are more central contributors to rising income inequality than previously recognized.