Görkem Bostancı, Economics, University of Pennsylvania
Abstract: High skill labor demand is infrequent but firms cannot adjust perfectly due to several adjustment costs. Professional Business Service Firms help alleviate this problem by allowing high skill labor to move across firms, reducing idiosyncratic part of labor demand risk. This allows high skill talent to be utilized better and increases their productivity. We show that improvements in intellectual property rights protection in the late 70s alleviated concerns regarding sharing sensitive data with 3rd party firms, thus helped professional business services to thrive in the following decades. Better utilization of high skill increased their compensation, contributing to the increasing wage inequality above the median income since 1980.