Dynamics and sources of wage inequality in Taiwan: Evidence from employer‐employee matched data

Abstract This paper studies the decline in wage inequality in Taiwan from 2004 to 2019 using administrative employer‐employee matched data and the Abowd–Kramarz–Margolis (AKM) framework. Unlike the U.S. and Europe, Taiwan experienced an 8.4% drop in wage inequality, driven largely by reductions in within‐firm disparities. Minimum wage hikes likely contributed to this compression, as lower‐tail inequality declined due to faster earnings growth among low‐wage workers, while upper‐tail inequality remained relatively stable. AKM estimates, robust to bias correction, indicate that firm‐specific wage premiums account for a small share of inequality, while worker‐firm sorting has become increasingly important in explaining wage dispersion.