This paper analyzes the role of establishments in the upward trend in dispersion of earnings that has become a central topic in economic analysis and policy debate. It decomposes changes in the variance of log earnings among individuals into the part due to changes in earnings among establishments and the part due to changes in earnings within establishments. The main finding is that much of the 1970s–2010s increase in earnings inequality results from increased dispersion of the earnings among the establishments where individuals work. Our results direct attention to the role of establishment-level pay setting and economic adjustments in earnings inequality.
relationship to intergenerational mobility. Panel Study of Income Dynamics (PSID) 1985
and 2011 files are used to examine the change in the share of workers in a middle-income
group (defined by persons having incomes within 50 percent of the median) and use a
shift-share decomposition to explore how the decline of unionism contributes to the
shrinking middle class. The files are also used to investigate the correlation between
parents’ union status and the incomes of their children. Additionally, federal income tax
data is used to examine the geographical correlation between union density and
intergenerational mobility. Findings include that union workers are disproportionately in
the middle-income group or above, and some reach middle-income status due to the
union wage premium; the offspring of union parents have higher incomes than the
offspring of otherwise comparable non-union parents, especially when the parents are
low-skilled; and offspring from communities with higher union density have higher
average incomes relative to their parents compared to offspring from communities with
lower union density. These findings show a strong, though not necessarily causal, link
between unions, the middle class, and intergenerational mobility.