INEQUALITY These studies find that the increasing size of corporations is driving inequality, while local and dispersed business ownership strengthens the middle class.

Wage Inequality and Firm Growth.” Holger M. Mueller, Paige P. Ouimet, and Elena Simintzi, LIS Working Paper 632, March 2015.

This paper finds that much of the dramatic increase in income inequality over the last two decades may be owed to consolidation in the economy and the growing market power of a small number of very large firms. Large firms pay higher wages on average than small firms do, but there’s significant variation across different types of workers, the authors find. At large firms, low- and medium-skilled employees earn about the same or a little less than their counterparts at small firms, while high-skilled employees are paid significantly more than similar positions at smaller companies. In other words, the gap between the best-paid workers and everyone else is much greater at big corporations than it is at small and medium-sized businesses. Using data from 1981 to 2010 on wages and the size of firms in 15 countries, the authors find a strong relationship between growth in the average firm size and rising levels of income inequality, particularly in the U.S. and U.K. They also find that in counties, such as Sweden and Denmark, where average firm size has stayed the same or declined, income inequality has grown much less. The paper concludes: “Our results suggest that part of what may be perceived as a global trend toward more wage inequality may be driven by an increase in employment by the largest firms in the economy.”

A Firm-Level Perspective on the Role of Rents in the Rise in Inequality” [PDF]. Jason Furman and Peter Orszag, Oct. 2015.

This paper explores the possibility that a major factor driving economic inequality is corporate consolidation — the growing market share of a few big companies. The authors present data showing that a small number of firms now earn “super-normal” returns of roughly ten times the median return for all firms. This is up significantly since the mid-1990s, when the most successful companies earned about three times the median return. These “super-normal” returns, the authors suggest, could be the result of growing monopoly power that allows a few dominant firms to extract economic “rents,” or more income than they would earn in a truly competitive market. While the authors emphasize that their paper is not conclusive, they note that this hypothesis is consistent with data showing that much of the rise in inequality is due to an increasing disparity in how much workers, especially those at the top, earn at different firms in the same industry. That is, companies with super-normal returns are distributing those returns to both their shareholders and their top-level employees, helping to expand wage inequality.