Working Paper: NBER ID: w22512
Authors: Erling Barth; James Davis; Richard B. Freeman
Abstract: We augment standard ln earnings equations with variables reflecting unmeasured attributes of workers and measured and unmeasured attributes of their employer. Using panel employee-establishment data for US manufacturing we find that the observable employer characteristics that most impact earnings are: number of workers, education of co-workers, capital equipment per worker, industry in which the establishment produces, and R&D intensity of the firm. Employer fixed effects also contribute to the variance of ln earnings, though substantially less than individual fixed effects. In addition to accounting for some of the variance in earnings, the observed and unobserved measures of employers mediate the estimated effects of individual characteristics on earnings and increasing earnings inequality through the sorting of workers among establishments.
Keywords: human capital; earnings; employer characteristics; wage determination; labor market
JEL Codes: J0; J01; J24; J3; J40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| observable employer characteristics (M51) | earnings (J31) |
| number of workers (J29) | earnings (J31) |
| education of coworkers (J24) | earnings (J31) |
| capital equipment per worker (E22) | earnings (J31) |
| industry (L89) | earnings (J31) |
| R&D intensity of the firm (O32) | earnings (J31) |
| employer fixed effects (C23) | variance of log earnings (C29) |
| individual fixed effects (C23) | variance of log earnings (C29) |
| observed and unobserved measures of employers (J79) | effects of individual characteristics on earnings (J31) |
| sorting of workers among establishments (J68) | earnings inequality (D31) |
| changes in employer characteristics (J63) | shifts in individual earnings (J31) |