2016/05 LEM Working Paper Series

Innovation and within-firm wage inequalities: empirical evidence from major European countries

Valeria Cirillo, Matteo Sostero and Federico Tamagni
within-firm wage inequalities, innovation, occupational wage-gap, quantile regressions, employer-employee matched data

  JEL Classifications
J31, O30, C21

A large literature analyses the links between wage inequality and technology, without explicitly taking into account within-firm wage dispersion. In this work we seek to fill this gap, exploiting a matched employeremployee dataset from a large representative survey on firms active in major European economies, providing several contributions. First, we employ different measures of within-firm wage dispersion, also accounting for wage differentials across managers vis-a-vis lower-layers occupations. Second, we disentangle the effects of innovation on wage dispersion within small vs. larger firms. Finally, we compare the effect of innovation across the spectrum between egalitarian and more unequal firms by means of quantile regressions. Our findings, robust to controlling for endogeneity and observed firm and workforce characteristics, suggest a good deal of heterogeneity. Indeed, innovation effects do vary according to the different measures of wage inequality, and also across smaller and larger innovative firms.
download pdf