Resource title

Firm Heterogeneity in Capital/Labor Ratios and Wage Inequality

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Resource description

This paper provides some empirical evidence and a theory of the relationship between residual wage inequality and the increasing dispersion of capital/labor ratios across firms. I document the increasing variance of capital/labor ratios across firms in the US labor market. I also show that the increase in the capital intensity variance across firms is associated with the increasing wage variance across workers. To explain this empirical fact, I adopt a search model where firms differ in their optimal capital investment. The decline in the relative price of equipment capital makes the firm distribution of capital/labor ratios more dispersed. In a frictional labor market, this force generates wage dispersion among identical workers. Simple calibration of the model indicates that the dispersion of capital/labor ratios can account for about one third of the total increase in residual wage inequality.

Resource author

Marco Leonardi

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/20146

Resource license

Adapt according to the presented license agreement and reference the original author.