Inequality and the Disappearing Large Firm Wage Premium

Nicholas Bloom (Stanford University, NBER, and SIEPR)

Fatih Guvenen (University of Minnesota, FRB of Minneapolis, NBER))

Benjamin S. Smith (UCLA)

Jae Song (Social Security Administration)

Till von Wachter (UCLA and NBER)

Abstract: Large firms have paid a significantly higher wage for more than a century, but over the last thirty years this large firm premium has started to disappear. We show about half of this is due to changes in industry composition - firms in the shrinking manufacturing sector pay an earnings premium while those in the growing services sector do not. The other half is because large firms have stopped paying a salary premium in the Abowd et al. (1999) sense, particularly for lower paid and lower skilled workers. Thus, one reason for increasing overall inequality may be the disappearance of well-paid jobs for lower skilled workers in large firms.