Working Paper: NBER ID: w4917
Authors: John M. Abowd; Francis Kramarz; David N. Margolis
Abstract: We study a longitudinal sample of over one million French workers and over 500,000 employing firms. Real total annual compensation per worker is decomposed into components related to observable characteristics, worker heterogeneity, firm heterogeneity and residual variation. Except for the residual, all components may be correlated in an arbitrary fashion. At the level of the individual, we find that person-effects, especially those not related to observables like education, are the most important source of wage variation in France. Firm-effects, while important, are not as important as person-effects. At the level of firms, we find that enterprises that hire high-wage workers are more productive but not more profitable. They are also more capital and high-skilled employee intensive. Enterprises that pay higher wages, controlling for person-effects, are more productive and more profitable. They are also more capital intensive but are not more high-skilled labor intensive. We also find that person-effects explain 92% of inter-industry wage differentials.
Keywords: wage differentials; firm performance; labor economics
JEL Codes: J31; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High wage workers (J31) | Increased productivity (O49) |
| High wage firms (J31) | Increased productivity (O49) |
| High wage workers (J31) | Not necessarily more profitable firms (L21) |
| Firms paying higher wages (J39) | More capital intensive (E22) |
| Firms paying higher wages (J39) | More professional employment intensive (J44) |
| Individual effects (C91) | 92% of inter-industry wage differentials (J31) |