Benny Kleinman, University of Chicago

Seminar

Date: Thursday 28 March 2024

Time: 10.00 – 11.30

Location: IIES Seminar Room

Wage Inequality and the Spatial Expansion of Firms

Multi-location firms increasingly dominate the U.S. economy and account for most of the increase in U.S. wage inequality. I develop a model that links these trends, featuring three main components: (a) firms open branches to serve local markets; (b) the output of firms' headquarters workers is non-rival across branches; (c) firms have wage-setting power. The model rationalizes multiple labor market trends from recent decades through changes in the geographical scope of firms, including a new micro-foundation for skill-biased technical change, rising spatial disparities, and a simultaneous increase in wage dispersion across and within firms. I provide empirical evidence in support of the non-rivalry assumption and of the model's main predictions. I use a quantitative version of the model to study the importance of firm spatial expansion for the overall increase in U.S. wage inequality and to evaluate the implications of key policies that shape firms' ability to span multiple local markets. -

Last updated: March 20, 2024

Source: IIES