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Introduction

This course focusses on labor market inequality. It starts by discussing rising dispersion in firm wage premia and worker sorting, and declining labor shares. The course then dives into 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. 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

2. 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.

Further readings

3. Technological change

In the last decade, there has been a paradigm shift in our thinking about the labor market impact of technological change. Up to 2010, the canonical model of the skill premium was most popular due to its simplicity and explanatory power. Today, task models of automation and the creation of new labor tasks are the dominant framework. This section consists of several subsections:

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.

Acemoglu and Restrepo (2019)

The paper discussed is Acemoglu and Restrepo (2019), “Automation and New Tasks: How Technology Displaces and Reinstates Labor”, Journal of Economic Perspectives. The discussion provides an introduction to task models assuming tasks are combined CES to produce aggregate output. The model presented predicts that automation decreases the labor share if the elasticity of substitution between capital and labor in aggregate output is not larger than unity. The discussion then tests this prediction using sectoral data and a decomposition of the aggregate labor share.

Further readings

4. Globalization

Autor, Dorn and Hanson (2013)

The paper discussed is Autor, Dorn and Hanson (2013), “The China Syndrome: Local Labor Market Effects of Import Competition in the United States”, American Economic Review.

Further readings

Coding lab Shift-Share IV

5. Unions

Stansbury and Summers (2020)

The paper discussed is Stansbury and Summers (2020), “The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy”, Brookings Papers on Economic Activity.

Dodini, Stansbury and Willen (2023)

The paper discussed is Dodini, Stansbury and Willen (2023), “How Do Firms Respond to Unions”, IZA Discussion Paper.

Further readings

6. Monopsony

Card, Cardoso, Heining and Kline (2018)

The paper discussed is Card, Cardoso, Heining and Kline (2018), “Firms and Labor Market Inequality: Evidence and Some Theory”, Journal of Labor Economics.

Further readings