Servitization, Inequality, and Wages

Authors: Dominik Boddin, Thilo Kroeger (Labour Economics, forthcoming, 102011)

This paper studies the effect of servitization, i.e., within-establishment changes in the labor force composition towards higher shares of workers with service occupations, on within-establishment wage inequality. We identify servitization as being a main driver of increasing within-establishment wage inequality. Servitization accounts for roughly 7% of the observed increase in the within-establishment wage inequality in manufacturing industries between 1994 and 2017. Higher servitization of an establishment’s labor force is associated with, on average, a lower wage level for otherwise equal workers across the majority of occupations. The wage decrease is particularly pronounced for workers in low-skilled manufacturing occupations and workers at the lower end of the wage distribution. These heterogeneous wage effects explain the increase in within-establishment wage inequality.

Keywords: Employment Structure, Occupational Change, Within-Firm Adjustments, Inequality, Wages, Servitization, Germany

JEL: E24, J21, J24, J31, L23

DOI: https://doi.org/10.1016/j.labeco.2021.102011