Rising concentration and wage inequality

Abstract

Wage inequality has risen in many countries over recent decades. At the same time, production has become increasingly concentrated in a small number of firms. In this paper, we show that these two phenomena are linked. Theoretically, we show that an increase in consumer price sensitivity will lead to an increase in the sectoral concentration of revenues and employment, as well as an increase in wage dispersion between firms within industries. Empirically, we use industry‐level data from 14 European countries over the period 1999–2016 and show robust evidence of a positive and statistically significant correlation between concentration and between‐firm wage inequality. We show that this is driven by higher market shares and higher wages in high‐productivity firms within more concentrated sectors.This article is protected by copyright. All rights reserved.

Productivity dispersion, wage dispersion and superstar firms

“…(2017) under the same representative sample considered in their productivity dispersion measures discussed above (dashed line). Results are also in line with Cortes and Tschopp (2020), who document a rise in wage inequality in a broad set of countries over recent decades 24…”

Market concentration and the relative demand for college‐educated labour

“…2022) or when the liberalization of international trade increases competition across borders (see Melitz and Ottaviano 2008). Cortes and Tschopp (2020) follow a similar strategy in terms of modelling the cause of the rise in concentration. An increase in the elasticity of substitution, as I will show, reallocates output and labour demand from firms with low productivity towards firms with high productivity.…”

“…(2020) study a competitive labour market with only one type of worker, I instead focus on a setting where firms employ both unskilled and skilled workers to study wage inequalities between the two types of workers. Cortes and Tschopp (2020) build a model that focuses on wage differences between homogeneous workers across heterogeneous firms, where labour market frictions give rise to wage differences across firms. My analysis is thus new in the sense that I focus on the skill premium specifically, and that I analyse income inequalities in a competitive labour market with heterogeneous firms, where it is the reallocation of production across firms that drives the increase in the skill premium.…”

“…I follow Autor et al . (2020) and Cortes and Tschopp (2020) in modelling the increase in market concentration as caused by a rise in the elasticity of substitution across goods, although other causes of a rise in concentration would yield similar outcomes 1 . If productivity and the skill intensity of firms (i.e.…”

“…The allocation of production across firms therefore affects aggregate differences in wages, even if all firms pay the same wages to the same type of workers. Cortes and Tschopp (2020), Rinz (2022) and Webber (2015) study the interaction between labour market concentration and wage inequality, but study the effects within groups of similar workers rather than the differences in outcomes between different types of workers.…”