Events at CERGE-EI

Horng Chern Wong

The University of Warwick, United Kingdom

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Author: Horng Chern Wong

Anstract: I study why some firms pay a wage premium relative to other firms for identical workers. To unpack the firm wage premium distribution, I develop and implement a novel structural decomposition using datasets covering the universe of employers and employees in France. Existing research shows that firm wage premia depend on firms’ productivity and wage-setting power. This paper shows that they also depend on firms’ product market power and labor share of production. My decomposition reveals important relationships between these firm characteristics. First, the negative relationship between productivity and the labor share of production (i) provides a new explanation for exceptionally productive superstar firms’ low labor shares of revenue, and (ii) implies that conventional measures of labor misallocation overstate the degree of misallocation. Second, firms with more product market power generally do not have more labor market power, but superstar firms have more market power in both markets than other firms.

Keywords: firm heterogeneity, wage inequality, market power, production technology, labor share

JEL codes: D24, D33, E2, J3, J42
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Full Text: “Understanding High-Wage and Low-Wage Firms”