Understanding Developments in Individuals’ Earnings Dispersion in Canada Using Matched Employer–Employee Data

The dispersion of earnings among workers may come from multiple sources. It may reflect differences in workers’ characteristics, such as education and experience. It may also be because workers are employed at different firms that pay differently. Recent studies from other countries have found that firms play an important role in explaining earnings disparities among workers, often through the link between productivity and pay. However, there has been no Canadian evidence on the link between the earnings dispersion and firm differences because of a lack of matched employer–employee data. This paper presents developments in the dispersion of individuals’ earnings in Canada and examines the potential of firm characteristics to account for this dispersion and changes in this dispersion in the post-2000 period using the Canadian Employer–Employee Dynamics Database.