Rising wage differential between white-collar and blue-collar workers and market concentration: The case of the USA, 1964-2007

Abstract

I suggest that market concentration at aggregate level has a significant structural impact on the wage differential between white-collar and blue-collar workers. Both phenomena are increasing as larger firms are more inclined to employ and pay more white-collar workers, in order to increase and/or maintain their market share by way of innovative tasks carried out by white-collars such as R&D, design and product differentiation, financial/capital market operations, market research, advertising and sales operations, etc. The causality from market concentration to wage differential runs through an effective demand channel and one based on the diffusion of innovations. The innovative contribution of the paper is to reveal this relationship of structural causality, and to provide a new measurement of aggregate market concentration which is calculated as the reverse of the break-even point. The argument is tested for the case of the USA between 1964 and 2007 using Vector Error Correction Model. The findings confirm the existence of a long-run positive relationship from market concentration in the nonfinancial corporate sector to the wage differential. JEL codes : L1, D4, J31