Labour market power and between-firm wage (in)equality / Matthias Mertens
VerfasserMertens, Matthias
ErschienenHalle (Saale), Germany : Halle Institute for Economic Research (IWH), Member of the Leibniz Association, [17. August 2020]
Umfang1 Online-Ressource (III, 78 Seiten, 1,94 MB) : Diagramme
SerieIWH-CompNet discussion papers ; 2020, no. 1 (August 2020)
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Labour market power and between-firm wage (in)equality [1.94 mb]
This study investigates how labour market power shapes between-firm wage differences using German manufacturing sector data from 1995 to 2016. Over time firm- and employee-side labour market power defined as the difference between wages and marginal revenue products of labour (MRPL) increasingly moderated rising between-firm wage inequality. This is because small low-wage low-MRPL firms possess no labour market power and pay wages equal to or even above their MRPL whereas large high-wage high-MRPL firms possess high labour market power and pay wages below their MRPL. These wage-MRPL differences grow over time and compress the firm wage distribution compared to the counterfactualcompetitive labour market scenario. Particularly for the largest highest-paying and highest-MRPL firms wage-MRPL differences strongly increase over time. This allows these firms to generate increasingly large labour market rents while being active on competitive product markets providing novel insights on why such "superstar firms” are profitable and successful.