Earnings Inequality in Production Networks

This paper investigates the importance of firm-to-firm production network linkages for earnings inequality. We develop a quantitative model in which heterogeneous firms hire workers different abilities an imperfectly competitive labor market and source intermediates from suppliers network. The delivers equation with firm-specific wage premium that depends endogenously on both firm productivities establish identification parameters estimate them using linked employer-employee transactions data Chile. Counterfactual simulations our estimated show heterogeneity explains 21% log variance, while passthrough productivity shocks via between 20-25% volatility. also examine effects minimum policy find strong spillover to worker above floor, substitution materials explaining around 40% these effects.