Insee Analyses · January 2024 · n° 92

Differences in workforce composition between firms explain a growing share of wage inequalities

From 2002 to 2019, wage inequalities decreased within firms, but increased between firms.

Several factors can explain the differences in average wage between firms. Firstly, firms do not employ the same types of employee, particularly in terms of occupation, qualifications and experience. These differences in workforce composition explained 20% of wage inequalities over the period 2002‑2007, and 27% over 2014‑2019. Firms also differed in their pay policies: systematic differences in wage levels between firms, for employees with similar profiles, accounted for around 7% of total inequalities.

Finally, these two factors interact: employees with the most highly valued profiles on the labour market tend to work for the most generous employers. The share of this 'sorting' in wage inequalities rose from 12% to 13% over the two periods observed. Sorting increases at the industry level, but not at the occupational level.