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Trade Shocks, Firm Hierarchies and Wage Inequality, Review of Economics and Statistics

Abstract

This paper shows robust effects of trade shocks on within-firm wage inequality through changes in firm hierarchies. It uses two distinct research designs\textemdash one considering firm-level shocks to foreign demand and transportation costs, the other analyzing the Muslim boycott of Danish exports after the 2006 ``Cartoon Crisis''. Consistent with knowledge-based and incentive-based hierarchy models, trade shocks affect organizational choices through production scale. Adding a hierarchy layer increases inequality throughout the organization, particularly widening the 90-50 wage gap and pay differences between top and bottom layers. Delayering after the boycott leads to wage compression through wage cuts, demotions, and employee turnover.

Type

Article

Author(s)

Benjamin Friedrich

Date Published

2021

Citations

Friedrich, Benjamin. 2021. Trade Shocks, Firm Hierarchies and Wage Inequality. Review of Economics and Statistics.

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