Holger Lengfeld and Clemens Ohlert
Up to date, it remains an unresolved issue how firms shape inequality in interaction with mechanisms of stratification at the individual and occupational-level. Accordingly, the…
Abstract
Purpose
Up to date, it remains an unresolved issue how firms shape inequality in interaction with mechanisms of stratification at the individual and occupational-level. Accordingly, the authors ask whether workers of different occupational classes are affected to different degrees by between-firm wage inequality. In light of the recent rise of overall wage inequality, answers to this question can contribute to a better understanding of the role firms play in this development. The authors argue and empirically test that whether workers are able to benefit from firms’ internal or external strategies for flexibility depends on resources available at the individual and occupational level. The paper aims to discuss these issues.
Design/methodology/approach
Matched employer-employee data from official German labour market statistics are used to estimate firm-specific wage components, which are then regressed on structural characteristics of firms.
Findings
Between-firm wage effects of internal labour markets are largest among unskilled workers and strongly pronounced among qualified manual workers. Effects are clearly smaller among classes of qualified and high-qualified non-manual workers but have risen sharply for the latter class from 2005 to 2010.
Social implications
The most disadvantaged workers in the labour market are also most contingent upon employers’ increasingly heterogeneous policies of recruitment and remuneration.
Originality/value
This paper combines insights from sociological and economic labour market research in order to formulate and test the new hypothesis that between-firm wage effects of internal labour markets are larger for unskilled than for qualified workers.
Details
Keywords
The purpose of this paper is to examine the role wage dispersion across establishments has played in recent increases in total wage inequality in Germany and compares it to…
Abstract
Purpose
The purpose of this paper is to examine the role wage dispersion across establishments has played in recent increases in total wage inequality in Germany and compares it to inequality changes at the individual level. It is queried whether the contribution of establishment heterogeneity to the rise of wage inequality stems from changes of institutional settings or from structures such as establishment size and the composition of the workforce.
Design/methodology/approach
Applying regression-based decompositions of variance to German linked employer-employee panel data for the years 2000-2010 it is analysed to what extent changes associated to firm structures contribute to the rise of total wage inequality.
Findings
Results show that the rise in wage inequality in Germany to a great extent is associated to rising wage variance across establishments, implying that establishment specific wage premiums have grown. By further decomposing across firm components of wage inequality, it is found that changes in across establishment wage inequality related to collective bargaining, worker co-determination and internal labour markets together account for about 3 per cent of the rise in total inequality. Inequality changes related to establishments’ skill and occupational composition account for about 11 per cent and establishment size alone accounts for about 18 per cent of the rise in total inequality.
Originality/value
The main contribution is to quantify the relation of specific establishment characteristics to the rise in total wage inequality over time. Conclusions are drawn about the importance of mechanisms of rent sharing at the firm level in comparison to the determination of wages by individual qualification.