Rui Castro, McGill University

Fri. Mar. 7 02:30 PM - Fri. Mar. 7 04:00 PM
Location: 4BC55

"The Dynamics of Firm-level Pay: Theory and Evidence from Portugal"

Abstract: We document that Portugal’s earnings inequality has been steeply decreasing since the mid-1990s, mostly due to a compression in firm pay. We investigate the determinants of this evolution, by deploying a tractable model of firm-pay heterogeneity featuring labor market’s monopsonistic power in a Hopenhayn-style firm dynamics framework. Our analysis suggests that a substantial increase in minimum wage was responsible for the wages of low-productivity firms to rise with respect to the mean. Our quantitative exercise hints that the wage policies of more productive firms are unlikely to have changed much as a result of the minimum wage hike.