Abstract
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.
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