The great divergence(s)

Abstract

This report provides new evidence on the increasing dispersion in wages and productivity using novel micro-aggregated firm-level data from 16 countries. First, the report documents an increase in wage and productivity dispersions, for both manufacturing and market services. Second, it shows that these trends are driven by differences within rather than across sectors, and that the increase in dispersion is mainly driven by the bottom of the distribution, while divergence at the top occurs only in the service sector, and only after 2005. Third, it suggests that between-firm wage dispersion is linked to increasing differences between high and low productivity firms. Fourth, it suggests that both globalisation and digitalisation imply higher wage divergence, but strengthen the link between productivity and wage dispersion. Finally, it investigates the impact of minimum wage, employment protection legislation, trade union density, and coordination in wage setting on wage dispersion and its link to productivity dispersion.