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Tasks, Occupations, and Wage Inequality in an Open Economy

21 aprile 2021
2:00 pm

This paper documents and theoretically explains a nexus between globalization and wage inequality within plants through internal labor market organization. We document that the dominant  component of overall and residual wage inequality is within plant-occupations and, combining within-occupation task information from labor force surveys with linked plant – worker data for Germany, establish three interrelated facts: (1) larger plants and exporters organize production into more occupations, (2) workers at larger plants and exporters perform fewer tasks within occupations, and (3) overall and residual wages are more dispersed at larger plants. To explain these facts, we build a model in which the plant endogenously bundles tasks into occupations and workers match to occupations. By splitting the task range into more occupations, the plant assigns workers to a narrower task range per occupation, reducing worker mismatch while typically raising the within-plant dispersion of wages. Embedding this rationale into a Melitz model, where fixed span-of-control costs increase with occupation counts, we show that inherently more productive plants exhibit higher worker efficiency and wider wage dispersion and that economy-wide wage inequality is higher in the open economy for an empirically confirmed parametrization. Reduced-form tests confirm main predictions of the model, and simulations based on structural estimation suggest that trade induces a stricter division of labor at globalized plants with an associated change in wage inequality.



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Michael Koch, Aarhus University