CARE Seminar: Andreas Kostøl, BI Norwegian

Speaker

Andreas Kostøl, BI Norwegian

Biography

I am an applied economist. In my research, I try to understanding interactions between labor markets, the safety net and determinants of income and consumption inequality. I am PI on several grants from the Norwegian Research Council, a research fellow at IZA. I am also an associate editor of JEEA.

Title

Firm Pay and Consumption Inequality

Abstract

Despite extensive evidence documenting that firms affect wage inequality, less is known about the role of firms in shaping workers’ welfare. We address this gap by combining expenditure data with administrative employer-employee records from Norway and a movers-based instrumental variables strategy. We find that when workers move to a new firm, a $1 pay differential leads to a 45-cent differential in spending. There is substantial heterogeneity in the consumption response, with no spending cuts for downward pay adjustments, with an 80% spending response to upward adjustments. Using a variance decomposition, we find that firms explain roughly half the variance of consumption inequality relative to wages. Finally, we demonstrate that a search-and-savings model quantitatively reproduces these results and provides support for a simple revealed preference approach that connects the empirical firm consumption effects to welfare. Taken together, our results indicate that worker spending decisions compress the pass-through from firm pay inequality to welfare inequality by roughly a half.