Between-Firm Inequality and Informal Social Relations

Employer investment, social closure, peer networks: substantial research highlights differences in informal social structure across workplaces. Yet studies of pay inequality between firms have largely neglected these differences in favor of more easily measurable features like firm size or ownership structure. We show how three types of workplace social relations shape firm pay setting: employer relational investment that supports higher wages, social closure as a source of bargaining power, and amenity ties that lock workers into jobs despite low pay. To operationalize these concepts, we draw on text data from a large archive of job reviews. Variance decomposition analyses show that differences in social relations account for up to 20% of overall inequality in between-firm pay premiums and 7% of residual inequality. Differences in informal social organization, and not just formal organization, predict pay differences between firms.