UC San Diego
Essays on Labor Markets and Inequality
- Author(s): Gouin-Bonenfant, Emilien
- Advisor(s): Hamilton, James D
- et al.
In the first chapter, I propose a tractable model of the labor share that emphasizes the
interaction between labor market imperfections and productivity dispersion. I bring the model to
the data using an administrative dataset covering the universe of firms in Canada. As in the data,
most firms have a high labor share, yet the aggregate labor share is low due to the disproportionate
effect of a small fraction of large, extremely productive “superstar firms”. I find that a rise in the
dispersion of productivity across firms leads to a decline of the aggregate labor share in favor of
firm profit. The mechanism is that productivity dispersion effectively shields high-productivity
firms from wage competition. Reduced-form evidence from cross-country and cross-industry
data supports both the prediction and the mechanism. Through the lens of the model, rising productivity dispersion has caused the U.S. labor share to decline starting around 1990.
In the second chapter, we propose a new, systematic approach for analyzing and solving
heterogeneous-agent models with fat-tailed wealth distributions. Our approach exploits the
asymptotic linearity of policy functions and the analytical characterization of the Pareto exponent
to make the solution algorithm more transparent, efficient, and accurate with zero additional
computational cost. As an application, we solve a heterogeneous-agent model that features
persistent earnings and investment risk, borrowing constraint, portfolio decision, and endogenous
Pareto-tailed wealth distribution. We find that a wealth tax is a ”lose-lose” policy: the introduction
of a 1% wealth tax (with extra tax revenue used as consumption rebate) decreases wage by 6.5%,
welfare (in consumption equivalent) by 7.7%, and total tax revenue by 0.72%.
In the third chapter, I propose a model of earnings dynamics and inequality within the
firm. The model combines a production hierarchy with a “rank order tournament” promotion
scheme. I motivate the theory by documenting three sets of facts using proprietary personnel
data. First, most of inequality within the firm is between hierarchy levels rather than within.
Second, there is on average very little upward mobility within the firm. Third, there is important
heterogeneity in earnings trajectories. The model provides a positive theory of these facts and
sheds light on the determinants of inequality within the firm.