Intangible intensity and between-firm wage inequality

Abstract

A substantial portion of the recent increase in wage inequality in advanced economies is attributed to the rise in between-firm wage inequality. At the same time, growing empirical evidence shows a rising reliance on intangible assets in the production process. We demonstrate that these two trends are related. Using industry-level data for European countries for the period 2000–2020, we show that intangible intensity positively affects between-firm wage inequality. When decomposing overall intangible capital into subcategories, we find that the effect is mainly driven by innovative property assets, such as R&D, licences and designs. Robustness checks and an instrumental variables strategy provide further support to these results. We interpret these findings as the outcome of technology-based effects arising from the distinctive characteristics of intangible assets and R&D, including their scalability and critical role in competitive advantage, which favour large and frontier firms.