The Rise in Earnings Inequality, Dissected

In their NBER working paper, Firming Up Inequality, the authors find:

Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.

To say the least, this is an interesting finding, if it holds up to scrutiny. The implication is that the rise in earnings inequality over the past few decades is as a result of new firms paying higher wages than previously existing firms. So the earnings inequality breaks down into a new economy/old economy dichotomy.