This paper examines links between evolutions in productivity dispersion, wage dispersion, and superstar firms. Using a rich sample of firms in 14 EU countries from 2000-2016, we confirm increases in all three variables—albeit with a moderating effect for wage and productivity dispersion in recent years. We document a positive correlation between productivity and wage dispersion, pointing to an incomplete pass-through of productivity gains to wages. Our analysis yields novel evidence that the rise of superstar firms is associated with a mediating effect on this correlation. This underscores theoretical work which posits that highly productive firms enjoy increased profit margins from access to globalisation while being shielded from local wage competition through increased labour market power. Most of the effects driving our main results are observed in the lower part of the productivity and wage distributions, consistent with a series of underlying structural changes in the economy.
The Link Between Productivity and Wage Dispersion: The Role of Superstar Firms