Management Papers

Document Type

Journal Article

Date of this Version

5-2017

Publication Source

Organization Science

Volume

28

Issue

3

Start Page

429

Last Page

446

DOI

10.1287/orsc.2017.1125

Abstract

Wage inequality in the United States has risen dramatically over the past few decades, prompting scholars to develop a number of theoretical accounts for the upward trend. This study argues that large firms have been a prominent labor-market institution that mitigates inequality. By compensating their low- and middle-wage employees with a greater premium than their higher-wage counterparts, large U.S. firms reduced overall wage dispersion. Yet, broader changes to employment relations associated with the demise of internal labor markets and the emergence of alternative employment arrangements have undermined large firms’ role as an equalizing institution. Using data from the Current Population Survey and the Survey of Income and Program Participation, we find that in 1989, although all private-sector workers benefited from a firm-size wage premium, the premium was significantly higher for individuals at the lower end and middle of the wage distribution compared to those at the higher end. Between 1989 and 2014, the average firm-size wage premium declined markedly. The decline, however, was exclusive to those at the lower end and middle of the wage distribution, while there was no change for those at the higher end. As such, the uneven declines in the premium across the wage spectrum could account for about 20% of rising wage inequality during this period, suggesting that firms are of great importance to the study of rising inequality.

Copyright/Permission Statement

The original, published article is available at: https://doi.org/10.1287/orsc.2017.1125

Keywords

firm-size wage premium, inequality, internal labor market, employment relationship

Embargo Date

5-5-2018

Available for download on Saturday, May 05, 2018

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Date Posted: 19 February 2018

This document has been peer reviewed.