Search

We examine the effect of higher wages on firm performance during the 2008 financial crisis. To identify variation in wages, we rely on heterogeneity in the timing of long-term wage agreements for a sample of U.K. firms. We instrument for firms signing long-term agreements overlapping with the crisis by the presence of a contract signed in 2006 or earlier and expiring before September 2008. Treated firms not only paid higher wages but also realized greater labor productivity relative to control firms. These findings are consistent with the intuition that opportunity cost differentials between treated and control firms induce employees to exert higher effort. (JEL J41, J30, J24, G01) Received February 28, 2019; editorial decision July 8, 2020 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

We discuss firm-level evidence based on UK data showing that within-firm pay inequality--wage differentials between top- and bottom-level jobs--increases with firm size. Moreover, within-firm pay inequality rises as firms grow larger over time. Lastly, using wage data from 15 developed countries, we document a positive association between aggregate wage inequality at the country level and growth by the largest firms in the country. We conclude that part of what may be perceived as a global trend toward more wage inequality may be driven by an increase in the size of the largest firms in the economy. [ABSTRACT FROM AUTHOR]