Within-Firm Pay Inequality

Financial regulators and investors have expressed concerns about high pay inequality within firms. Using a proprietary data set of public and private firms, this paper shows that firms with higher pay inequality—relative wage differentials between top- and bottom-level jobs—are larger and have higher valuations and stronger operating performance. Moreover, firms with higher pay inequality exhibit larger equity returns and greater earnings surprises, suggesting that pay inequality is not fully priced by the market. Our results support the notion that differences in pay inequality across firms are a reflection of differences in managerial talent

Essays in financial economics

This thesis examines how product and input markets interact with firms' financial and real decisions and thus impact corporate policies. The first part of the thesis documents empirically how strategic considerations provided by product markets affect firms' investment decisions. It shows that firms react to actions taken by competitors when these indicate a competitive threat. Using news from restructur- ing announcements of manufacturing sites in the UK, it shows that other locally competing firms respond to the news by increasing their investment in capital if the restructuring action improves the competitive position of the announcing site. It also demonstrates the importance of financial constraints, showing that their existence dampens firms' ability to respond to the news. The fact that all restruc- turing announcements involve layoffs, and therefore impact firms' input markets, allows studying further responses by competitors, and namely their wages and hiring policies. The remaining part of the thesis focuses on how labor markets affect firms' capital structure and real activities. First, it examines the eect of labor regulation on firms' ability to access external finance. Exploiting changes in employment protection laws in 21 OECD countries, it shows that worker-friendly labor laws are negatively associated with firm leverage. In terms of firms' real activities, increases in employment protection legislation lead to lower firm invest- ment and growth and this effect is more pronounced for firms which depend more on external capital. These findings suggest a supply-side channel through which labor regulation hinders growth, that is, labor crowds out external finance. Finally, this part of the thesis examines the effect of labor bargaining power on firm leverage. It revisits the existing dominant paradigm that firms use debt to improve their bargaining position against labor and identifies an alternative channel which uncovers a negative relation between bargaining power of labor and firm leverage

A Service of zbw Leibniz-Informationszentrum Wirtschaft Leibniz Information Centre for Economics LIS Working Paper Series Wage Inequality and Firm Growth Wage Inequality and Firm Growth *

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in February 2015 Abstract We examine how within-firm skill premia-wage differentials associated with jobs involving different skill requirements-vary both across firms and over time. Our firm-level results mirror patterns found in aggregate wage trends, except that we find them with regard to increases in firm size. In particular, we find that wage differentials between high-and either medium-or low-skill jobs increase with firm size, while those between medium-and low-skill jobs are either invariant to firm size or, if anything, slightly decreasing. We find the same pattern within firms over time, suggesting that rising wage inequality-even nuanced patterns, such as divergent trends in upper-and lower-tail inequality-may be related to firm growth. We explore two possible channels: i) wages associated with "routine" job tasks are relatively lower in larger firms due to a higher degree of automation in these firms, and ii) larger firms pay relatively lower entry-level managerial wages in return for providing better career opportunities. Lastly, we document a strong and positive relation between within-country variation in firm growth and rising wage inequality for a broad set of developed countries. In fact, our results suggest that part of what may be perceived as a global trend toward more wage inequality may be driven by an increase in employment by the largest firms in the economy. * We thank Xavier Giroud, Claudia Goldin, and Johannes Stroebel for valuable comments and Raymond Story at Income Data Services (IDS) for help with the data. † NYU Stern School of Business, NBER, CEPR, and ECGI