۱- Introduction

۲- Data

۳- Wage inequality and establishment heterogeneity

۴- Conclusion

References

Abstract

We analyze wage dispersion within and across establishments in Korea between 2007 and 2013. We find that foreign owned establishments and those operating in global markets have higher within-establishment wage dispersion. The effect is over and above the establishment size effect. Furthermore, wages are higher in larger establishments and internationally oriented ones. Our findings are consistent with theories explaining management pay and the scope of control. Our results also provide evidence that can explain the rise in wage inequality due to the emergence of ‘super star’ firms and global supply chains.

Introduction

In recent years, there has been a fast growing literature documenting the increase in income inequality across the world (Atkinson et al., 2011). An important concern largely ignored by most trade economists is that the gains of globalization have not benefited all in the same way. For instance, Autor et al. (2013) document how import competition from China has contributed to almost 3 million jobs lost in U.S. manufacturing between 2000 and 2010. Goos et al. (2009) show how offshoring has contributed to increased polarization in the U.K. With the emergence of ‘super star’ firms1 operating along global supply chains, increased scale economies related to international trade have likely resulted in increased profits of multinational firms with limited pass-through into prices and wages (Goldbert and Pavcnik, 2016). This is in line with recent evidence showing the increased market power in U.S. listed firms during the last 4 decades (De Loecker and Eeckhout, 2017). This paper analyzes the role of establishment heterogeneity in rising wage inequality. In particular, there are large differences between establishments in terms of their size and hence profitability even within narrowly defined sectors. Establishments also differ in terms of their participation to international trade or international production networks. We use a new and hitherto unexploited establishment level data set of Korean firms with detailed information on different occupational hierarchies and their wages to analyze how establishment size and exposure to international trade may have contributed to wage dispersion within and across establishments. A number of papers have studied the sources of wage inequality around the world. One strand of the literature has documented increasing wage inequality due to trade liberalization in both developed and developing economies (Goldberg and Pavcnic, 2007; Verhoogen, 2008). However, the evidence of the impact of trade on inequality for the Korean case seems to be mixed. Kang (2014) studies the impact of trade openness and FDI on the income distribution and finds that trade openness is positively related to income inequality, but negatively related to FDI inflows and outflows. Lee (2017) shows that import competition and technological change contributed to rising wage dispersion within the manufacturing sector over 1980–۲۰۱۲٫ However, other trade-related measures, such as export intensity and FDI, had no substantial effects on wage inequality. In contrast, Karacaovali and Tabakis (2017) document that a significant part of the aggregate wage inequality persists within different trade-exposure categories in manufacturing and services sectors, suggesting that international trade might not be the main factor to explain the rise in wage dispersion. Another strand of the literature has studied wage policies that pay out high wages to CEOs as a source of growing earnings inequality.