Seminar by Hartmut Egger at CMSSE

Abstract:
This paper documents and theoretically explains a nexus between globalization and residual wage inequality through internal labor market reorganization. Combining time-varying within-occupation task information from representative German labor force surveys with linked plant–worker data for Germany, we establish three interrelated facts: (1) Larger plants and exporters organize production into more occupations, and (2) workers at larger plants and exporters perform fewer tasks within occupations, while (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 can assign workers to a narrower task range per occupation, reducing worker mismatch and raising worker efficiency as well as the within-plant dispersion of wages. Embedding this rationale into a Melitz (Econometrica 2003) model, where fixed span-of-control costs increase with occupation counts, we show that inherently more productive (exporter) 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. Estimation of our model shows that a worker’s average number of tasks is inversely related to plant revenues and that the within-plant wage dispersion is positively related to plant size.