Working Paper: NBER ID: w25786
Authors: Benjamin Friedrich; Lisa Laun; Costas Meghir; Luigi Pistaferri
Abstract: We use matched employer-employee data from Sweden to study the role of the firm in affecting the stochastic properties of wages. Our model accounts for endogenous participation and mobility decisions. We find that firm-specific permanent productivity shocks transmit to individual wages, but the effect is mostly concentrated among the high-skilled workers. The pass-through of temporary shocks is smaller in magnitude and similar for high- and low-skilled workers. The updates to worker-firm specific match effects over the life of a firm-worker relationship are small. Substantial growth in earnings variance over the life cycle for high-skilled workers is driven by firms. In particular, cross-sectional wage variances by age 55 are roughly one-third higher relative to a scenario with no pass-through of firm shocks onto wages.
Keywords: Earnings Dynamics; Firm-Level Shocks; Wage Inequality; Labor Market Risks
JEL Codes: I18; J24; J31; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm-specific permanent productivity shocks (D25) | individual wages (J31) |
| firm-specific permanent productivity shocks (D25) | individual wages (high-skilled workers) (J31) |
| firm-specific permanent productivity shocks (D25) | individual wages (low-skilled workers) (J31) |
| firm-level shocks (D22) | wage variance (high-skilled workers) (J31) |
| firm-level shocks (D22) | wage variance (low-skilled workers) (J31) |