Intangible intensity and between‐firm wage inequality

Abstract A substantial portion of the recent increase in wage inequality in advanced economies is attributed to the rise in between‐firm wage inequality. At the same time, growing empirical evidence shows a rising reliance on intangible assets in the production process. We demonstrate that these two trends are related. Using industry‐level data for European countries for the period 2000–2020, we show that intangible intensity positively affects between‐firm wage inequality. When decomposing overall intangible capital into subcategories, we find that the effect is mainly driven by innovative property assets, such as R&D, licences and designs. Robustness checks and an instrumental variables strategy provide further support to these results. We interpret these findings as the outcome of technology‐based effects arising from the distinctive characteristics of intangible assets and R&D, including their scalability and critical role in competitive advantage, which favour large and frontier firms.