Keynes Fund Research - Inequality and the Organisation of Work in a Knowledge Economy - Lukas Freund

Firms are increasingly viewed as playing a central role in the evolution of wage inequality. Across many advanced economies, a prominent feature of wage dispersion and its rise since the 1980s is the large and increased share attributable to between-firm differences in pay.
In this project, Lukas develops, tests, and quantifies a novel theory to explain this trend. The core idea is that shifts in the nature of work toward greater skill specialization have reinforced interdependencies between coworkers. This idea is formalized in a model wherein each firm coordinates a team of workers who vary in in talent and are specialized in specific tasks. In turn, stronger complementarities between coworkers’ talents have made it increasingly advantageous to assemble 'superstar teams' composed of the most talented workers that pull away from 'the rest' in terms of productivity and pay.
Administrative panel data for Germany are used to measure complementarities, validate key mechanisms, and estimate the model. Lukas finds that coworker complementarities and talent sorting have strengthened concurrently, aligned with the theory’s predictions. According to model exercises, this explains a quantitatively significant share of the observed increase in the between-firm share of wage inequality, and it contributed to elevated firm-level productivity dispersion.
Find out more about Lukas Freund’s Keynes Fund project on the Keynes Fund website:
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