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Open Access Publications from the University of California

Essays on Labor Markets and Inequality

  • Author(s): Gouin-Bonenfant, Emilien
  • Advisor(s): Hamilton, James D
  • et al.
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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.

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This item is under embargo until June 24, 2021.