Firm-level link_productivity_wage inequality_OECD-IMF-WB Conference Sept 2020

THE FIRM-LEVEL LINK BETWEEN PRODUCTIVITY DISPERSION AND WAGE INEQUALITY: A SYMPTOM OF LOW JOB MOBILITY? Chiara Criscuolo, Alexander Hijzen, Michael Koelle, Cyrille Schwellnus 24 September 2020

Both productivity dispersion and wage inequality are increasing OECD Labour productivity

Real wages

Notes: 21 OECD countries. Cumulative growth rates since 2001.

Source: Andrews, Gal & Criscuolo (2016); Schwellnus, Pak & Pionnier (2018).

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The role of firms in wage inequality Aggregate wage inequality

Between-firm wage dispersion Globalisation

Productivity dispersion

Policies Structural factors

Firm wage premia dispersion 3

Policy

The OECD LinkEED project: a new cross-country database for policy analysis The data • Linked employer-employee microdata from 17 countries from mid-1990s to mid-2010s • Universe or samples of workers/firms, mostly from tax or social security administrative databases • Cross-country analysis of confidential admin data made possible by a distributed micro-data approach with a large network of external collaborators

The network • • • • • • • • • • • •

Erling Barth (Institute for Social Research) Wen-Hao Chen (Statistics Canada) Richard Fabling (MOTU, New Zealand) Priscilla Fialho (OECD) Alfred Garloff (IAB) Katarzyna Grabska (Maastricht University) Ryo Kambayashi (Hitotsubashi University) Valerie Lankester (Costa Rica Central Bank) Balazs Murakozy (University of Liverpool) Oskar Nordstrom Skans (Uppsala University) Satu Nurmi (VATT, Finland) Richard Upward (University of Nottingham), 4

Firm wage premia account for two-thirds of wage inequality between firms

Firm premium

Workforce composition

Between firm

Within firm

1

USA EST HUN CAN CRI JPN ESP PRT GBR NLD NOR AUT FRA NZL FIN DEU ITA SWE

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Across countries, wage premia dispersion is positively correlated with productivity dispersion

6

Conceptual framework: Pass-through of productivity to wage premia Frictional labour market with limited job mobility between firms.

1. Limited job mobility makes labour supply curve steeper.

2. Competition in product market makes labour demand flatter.

3. Institutions constrain wagesetting.

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Data coverage Two levels of analysis • Worker-level (country-by-country): Workers linked to employer + firm production data.

• Industry-level (cross-country): Panel of country-industry-year wage premia variances from cross-sectional LEED + productivity variances from business registers and surveys (OECD Multi-Prod) Country coverage • Worker level (9 countries): CAN, CRI, DEU, FIN, FRA, HUN, JPN, NLD, PRT • Industry level (13 countries): AUT, CAN, DEU, FIN, FRA, HUN, ITA, JPN, NLD, NOR, NZL, PRT, SWE 8

Empirical framework Country-by-country: worker-level model Firm-level productivity pass-through:

(1)

Cross-country: industry-level model Defining wage premium as

and taking firm-level average: (2)

Estimating equation across countries, industries and years: (3) 9

Firm-level productivity pass-through is around 0.15

10

Higher pass-through when labour supply elasticity is low Rate of job-to-job transitions OLS

IV

Note: In the right-hand panel, job-to-job transitions in a country-industry year are instrumented by the (geometric) mean of job-to-job transitions in the same industry in all other countries, and all other industries in the same country.

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Pass-through increases with labour demand elasticity Foreign value added in domestic final demand

Imports as a share of value added

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Some wage-setting institutions reduce pass-through Collective bargaining

Minimum wage

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High

Strong product market competition

High job mobility

Institutions that compress wage distribution

Low

Efficiency of labour allocation

Conclusions and policy implications

High

Wage inequality

Low

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Reserve slides

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Variance of wage premia .05 .1 .15

.2

Between-firm wage premia dispersion mainly reflects dispersion within the same industry

83%

80%

71% 71% 82% 76%

83% 64%

74% 73% 84%

85% 84% 81%

0

53%

EST

HUN

CAN

JPN

ESP

PRT

CRI

AUT

NLD

NZL

NOR

Within industry Between industries

DEU

ITA

FRA

FIN

SWE

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Higher firm-level productivity pass-through and lower rent sharing typically go together

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Within industries, higher pass-through for high-skilled workers

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Within industries, mostly higher pass-through for men

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Higher pass-through when local labour market concentration is high

Note: Portugal 1991-2009. Log wage premia are normalised to the average at P90 of concentration and P10 of productivity.

Concentration is HHI of hiring within region-occupation.

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Structural and institutional determinants of firm-level productivity pass-through Based on equation (3), 1995-2015 (1)

(2)

(3)

Labour supply elasticity

0.02** (0.01)

Var(Prod) x High rate of industry job-to-job transitions

0.06*** (0.01) -0.06*** (0.01)

Var(Prod) x High share of foreign VA in domestic final demand Labour demand elasticity

(5)

0.01 (0.01)

0.01 (0.01)

0.01 (0.01)

0.05*** (0.02)

0.05*** (0.02) -0.01 (0.02)

0.06*** (0.02)

Var(Prod) x Highly concentrated industry Var(Prod) x High share of imports over value added

-0.00 (0.00)

(8)

(9)

0.08*** (0.01)

0.01 (0.01)

0.01 (0.01) -0.02** (0.01) 0.02* (0.01)

0.07*** (0.01)

-0.05*** (0.02) YES YES YES YES 2,823 0.78

0.07*** (0.02) -0.01 (0.01) YES YES YES YES 2,823 0.80

0.09*** (0.02)

Var(Prod) x High minimum wage relative to median wage Country fixed effects Industry fixed effects Year fixed effects Non-interacted determinant Observations 2 Adjusted R

(7)

-0.02 (0.02)

Var(Prod) x Decentralised collective bargaining country Wage-setting institutions

(6)

Var(Firm Wage Premia)

Dependent Variable: Var(Firm Productivity)

(4)

YES YES YES 2,823 0.70

YES YES YES YES 2,823 0.74

YES YES YES YES 2,823 0.74

YES YES YES YES 2,823 0.74

YES YES YES YES 2,823 0.74

YES YES YES YES 2,823 0.78

YES YES YES YES 2,823 0.81 21

Robustness: job-to-job mobility Based on equation (3), 1995-2015 (1)

(2)

(3)

(4)

Model:

Var(Prod) x High rate of industry job-to-job transitions

OLS 0.06*** (0.01) -0.06*** (0.01)

OLS 0.06*** (0.01) -0.06** (0.01)

OLS 0.05*** (0.01) -0.04*** (0.01)

OLS 0.07*** (0.02) -0.07*** (0.01)

IV-2SLS 0.04*** (0.01) -0.03** (0.02)

Var(Prod) x High rate of job-to-job transitions (incl. from other industries) Var(Prod) x Unemployment rate

(7)

(8)

(9)

(10)

OLS 0.05*** (0.01)

OLS 0.06*** (0.02)

OLS 0.03*** (0.01)

OLS 0.06*** (0.02)

IV-2SLS 0.04*** (0.01)

-0.04*** (0.01)

-0.04*** (0.01) -0.30** (0.14)

-0.03** (0.01)

-0.05*** (0.01)

-0.03** (0.02)

-0.33** (0.16)

Var(Prod) x Employment rate Country fixed effects Industry fixed effects Year fixed effects Country-year fixed effects Sector-year fixed effects Non-interacted determinant Observations

(6)

Var(Firm Wage Premia)

Dependent Variable: Var(Firm Productivity)

(5)

YES YES YES

YES 2,823

YES YES YES

YES 2,823

-0.33*** (0.09) YES YES YES

YES 2,823

YES YES YES YES YES YES 2,823

YES 2,823

YES YES YES

YES 2,823

YES YES YES

YES 2,823

-0.41*** (0.12) YES YES YES

YES 2,823

YES YES YES YES YES YES 2,823

YES 2,823

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Continuous explanatory variables Based on equation (3), 1995-2015 (1)

(2)

(3)

Labour supply elasticity

0.02** (0.01)

Var(Prod) x Rate of industry job-to-job transitions

0.03*** (0.01) -0.01*** (0.00)

Var(Prod) x Share of foreign VA in domestic final demand Labour demand elasticity

(5)

0.03*** (0.01)

0.03*** (0.01)

0.01 (0.01)

0.11*** (0.05)

0.11** (0.05) -0.03 (0.02)

0.29*** (0.08)

Var(Prod) x Industry concentration Var(Prod) x Share of imports over value added

-0.00 (0.00)

(8)

(9)

0.06*** (0.01)

-0.02 (0.02)

-0.00 (0.01) -0.00*** (0.00) -0.02 (0.03)

0.11*** (0.02)

-0.26*** (0.11) YES YES YES YES 2,823 0.78

0.11*** (0.03) 0.20* (0.11) YES YES YES YES 2,823 0.80

0.09*** (0.02)

Var(Prod) x Ratio of minimum wage relative to median wage Country fixed effects Industry fixed effects Year fixed effects Non-interacted determinant Observations 2 Adjusted R

(7)

-0.07*** (0.02)

Var(Prod) x Decentralised collective bargaining country Wage-setting institutions

(6)

Var(Firm Wage Premia)

Dependent Variable: Var(Firm Productivity)

(4)

YES YES YES 2,823 0.70

YES YES YES YES 2,073 0.73

YES YES YES YES 2,823 0.74

YES YES YES YES 2,823 0.74

YES YES YES YES 2,823 0.74

YES YES YES YES 2,823 0.78

YES YES YES YES 2,073 0.83 23

Job mobility across countries Rate of job-to-job transitions, 2016

Source: Causa & Luu (forthcoming).

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