Trade Shocks, Firm Hierarchies and Wage Inequality
This paper studies a novel mechanism through which trade affects wage inequality within firms: changes in firm hierarchies. Two distinct research designs?one based on firm-level shocks to foreign demand and transportation costs, and the other using the Muslim boycott of Danish exports after the 2006 Cartoon Crisis suggest robust effects of trade shocks on within-firm inequality through changes in hierarchies. Consistent with knowledge-based and incentive-based hierarchy models, trade shocks affect organizational choices through production scale. Adding a hierarchy layer significantly increases inequality throughout the organization, by 8.2% for the average wage gap between top and bottom layer, 1.3% for the overall wage variance and 3.6% for the 90-50 wage gap.
Friedrich, Benjamin. 2020. Trade Shocks, Firm Hierarchies and Wage Inequality.