Introduction
This module gives an overview of different measures of inequality and their drivers. It starts by documenting changes in workers' skill premia, firm-wage premia and worker sorting, and the labor share. The module then summarizes the possible drivers of these changes by discussing recent theoretical and empirical insights into the labor market impacts of technological progress, globalization, unions, and firms' monopsony power.
1. Workers' skill premia
Up to 2000, the canonical model of rising skill premia explained an important part of the overall rise in wage inequality.
Acemoglu and Autor (2011) - Part 1
This section discusses the first part in Acemoglu and Autor (2011), “Skills, Tasks and Technologies: Implications for Employment and Earnings”, Handbook of Labor Economics, Sections 1-3, p. 1044-1117. The discussion summarizes the success of the canonical model in explaining the skill premium, but also its challenges that have lead to the emergence of task models.
2. Firm wage premia
If firms have no wage-setting power, firm wage premia would not exist for equally productive workers. Here we discuss that firm wage premia do exist and are important for explaining wage inequality.
Card, Heining and Kline (2013)
The paper discussed is Card, Heining and Kline (2013), “Workplace Heterogeneity and the Rise of West German Wage Inequality”, Quarterly Journal of Economics. The discussion explains the AKM estimator to identify worker and firm types in matched employer-employee data and shows the importance of firm wage premia and sorting in explaining wage inequality. The discussion also refers to other papers for further reading.
Further readings
3. The labor share
After decades of stability, the labor share has recently declined. Here we discuss the various reasons why this is the case.
Grossman and Oberfield (2022)
The paper discussed is Grossman and Oberfield (2022), “The Elusive Explanation for the Declining Labor Share”, Annual Review of Economics. The discussion gives an overview of recent papers with different explanations for the declining labor share.
Autor, Dorn, Katz, Patterson and Van Reenen (2020)
The paper discussed is Autor et al. (2020), “The Fall of the Labor Share and the Rise of Superstar Firms”, Quarterly Journal of Economics. The paper argues that the labor share has fallen because globalization and technological progress push sales towards the most productive firms in each industry, which have higher markups and lower labor shares.