High-wage Firms Research Articles

Job mobility, reallocation and wage growth: A tale of two countries

Job reallocation is a key driver of aggregate wage growth, but its role in different economic systems remains understudied. This paper takes a comparative view and analyses the role of job mobility in job reallocation and aggregate wage growth in Norway, comparing it to published results for the United States. The results show first that, as expected, overall job mobility is much lower in Norway compared to the United States, likely reflecting the compressed wage distribution. However, the speed of job reallocation from low-wage to high-wage firms is similar to or even higher than in the United States. Second, in both Norway and the United States, the process of job reallocation is strongly pro-cyclical. This is entirely driven by the pro-cyclical nature of net job-to-job mobility from low- to high-wage firms. Third, for Norway, the bulk of aggregate wage growth reflects on-the job wage growth, while its cyclicality is largely driven by net job-to-job mobility from low to high-wage firms. This paper shows that reallocation is not necessarily less efficient in more egalitarian societies with lower mobility and different wage structures.

Does foreign direct investment affect domestic firms’ social security contributions?

Foreign direct investments (FDI) in developing countries are found to affect local domestic firms by introducing competition and spillover effects. This study investigates the effect of FDI on domestic firms’ social security contributions. It exploits China’s 2002 FDI liberalization and applies the difference-in-differences strategy for a causal identification. Using a Chinese firm-level dataset of the manufacturing industry, the estimates show that foreign investments have a positive effect on domestic firms’ social security contributions as a share of the wage base. The estimated effects are more pronounced in private firms, higher-wage firms, and firms facing lower contribution costs. Evidence also indicates that the increase in firms’ propensity to contribute plays an important role in explaining the overall increase in social security contribution rates. The promotion of social security compliance among domestic firms by FDI inflow suggests that market competition could be an attractive and effective approach to combating non-compliance with social insurance regulations.

Winner-takes-all or inclusive growth? The impact of digitalization on inter-firm wage inequality: evidence from China

ABSTRACT While previous research explores the impact of digitalization on individual firms’ performance, its potential to generate wage changes among firms with different characteristics, and subsequent inter-firm wage inequality, is often overlooked. Therefore, using China’s city panel data from 2003 to 2019, we assess the impact of digitalization on inter-firm wage inequality. Our findings reveal that digitalization increases inter-firm wage inequality in China, which is further validated using robustness tests. Mechanism tests reveal that digitalization tends to enhance high-wage firms’ productivity, widening the inter-firm productivity gap and exacerbating wage inequality. Further analysis indicates that digitalization boosts productivity more strongly in state-owned firms and those with higher research and development expenditure or more skilled talent, which typically pay higher wages, further widening the wage gap between firms. Our study supports the winner-takes-all perspective in the digital era, suggesting that the government should actively implement measures to protect vulnerable firms and maintain social equity.

Financialization of the firms and between-firm inequality: evidence from China

ABSTRACT In this paper, we investigate the distributional effects of the financialization of firms from the perspective of between-firm inequality. Using financial statement data of nonfinancial firms listed on China’s A-share stock market, we find that the financialization of firms significantly increases the dispersion of employee wage between firms. Mechanism analysis shows the financialization of firms increases between-firm inequality through the larger increasing effect on employee wages for high-wage firms through the rent sharing effect. The findings suggest that an increase in wage rent in low-wage firms could be encouraged to relieve the negative effects of financialization on inequality.

AKM Effects for German Labour Market Data from 1985 to 2021

Abstract This article describes the processing and accessibility of the person and establishment fixed wage effects in German administrative data. These effects have been estimated following the approach of Abowd, J., Kramarz, F., and Margolis, D. (1999. High wage workers and high wage firms. Econometrica 67: 251–333) and Card, D., Heining, J., and Kline, P. (2013. Workplace heterogeneity and the rise of West German wage inequality. Q. J. Econ. 128: 967–1015). They can be linked to most of the available administrative datasets provided by the Research Data Center (FDZ) of the German Federal Employment Agency at the Institute for Employment Research (IAB). They are available for different time intervals from 1985 until 2021. These effects have been used in numerous articles that deal with the contributions of workers and establishments to earnings inequality.

Firm Pay Policies and the Gender Earnings Gap: The Mediating Role of Marital and Family Status.

Using data from the Canadian Employer-Employee Dynamics Database between 2001 and 2015, the authors examine the impact of firms' hiring and pay-setting policies on the gender earnings gap in Canada. Consistent with the existing literature and following Card, Cardoso, and Kline (2016), findings show that firm-specific premiums explain nearly one-quarter of the 26.8% average earnings gap between female and male workers. On average, firms' hiring practices, due to differences in the relative proportion of women hired at high-wage firms (known as sorting), and pay-setting policies, due to differences in pay by gender within similar firms, each explain approximately one-half of this firm effect. The compositional difference between the two channels varies substantially over a worker's life cycle, by parental and marital status, and across provinces.

Twisting the demand curve: Digitalization and the older workforce

Software represents a major and fast-growing share of firms’ capital investment, impacting demand for labor and what workers do on their jobs. Using U.S. Census Bureau panel data that link firms and workers, this paper estimates the effect of firm software capital on the earnings of workers by age group. We extend the AKM framework to include job-spell fixed effects that account for potential correlation between the worker–firm match and employee age, as well as including time-varying firm effects that allow for a correlation between wage-enhancing productivity shocks and software investments. Within job-spell, capitalized software investment raises worker earnings. However, it does so at a rate that declines after the age of 50, to about zero beyond 65. Our data further show that software capital increases the earnings of high-wage workers relative to low-wage workers and earnings in high-wage firms relative to low-wage firms, thereby widening earnings inequality within and across firms.

Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil

We measure the effects of firm policies on racial pay differences in Brazil. Non-Whites are less likely to be hired by high-wage firms, explaining about 20 percent of the racial wage gap for both genders. Firm-specific pay premiums for non-Whites are also compressed relative to Whites, contributing another 5 percent for that gap. A counterfactual analysis reveals that about two-thirds of the underrepresentation of non-Whites at higher-wage firms is explained by race-neutral skill-based sorting. Non-skill-based sorting and differential wage setting are largest for college-educated workers, suggesting that the allocative costs of discriminatory hiring and pay policies may be relatively large in Brazil. (JEL J15, J24, J31, J41, J46, J71, O15)

The Search for Good Jobs: Evidence from a Six-year Field Experiment in Uganda

We present evidence from a six-year field experiment with young job seekers in urban labor markets in Uganda. We study how standard labor market interventions impact their search behavior, long run labor market outcomes, and how these long run outcomes are mediated through search behavior. The interventions we consider are the offer of vocational training, vocational training combined with job assistance, and job assistance only. Training is offered in sectors with high wage firms. Job assistance comprises a light touch offer to match workers for job interviews with such high wage firms. At baseline, youth are unskilled yet overly optimistic about their job prospects. Relative to controls, those offered vocational training become even more optimistic, search more intensively and direct their search towards higher quality firms. However, for youth additionally offered job assistance, expectations and search effort are revised downwards as call back rates from firms the workers are matched to, are far lower than their prior expectation. These differential search strategies impact long run outcomes: vocational trainees without job assistance have higher employment rates, longer employment spells, and end up in higher quality jobs and firms than workers additionally offered job assistance. Our analysis highlights how the potential for labor market entrants to be exuberant or discouraged both matter for long run outcomes through job search behavior. We discuss implications for the design and targeting of labor market interventions meant to help young people find good jobs.

The impact of deunionization on the growth and dispersion of productivity and pay

Abstract This article presents an Agent-Based Model (ABM) that seeks to explain the concordance of sluggish growth of productivity and of real wages found in macroeconomic statistics, and the increased dispersion of firm productivity and worker earnings found in micro level statistics in advanced economies at the turn of the 21st century. It shows that a single market process unleashed by the decline of unionization can account for both the macro- and micro-economic phenomena, and that deunionization can be modeled as an endogenous outcome of competition between high wage firms seeking to raise productive capacity and low productivity firms seeking to cut wages. The model highlights the antipodal competitive dynamics between a “winner-takes-all economy” in which corporate strategies focused on cost reductions lead to divergence in productivity and wages and a “social market economy” in which competition rewards the accumulation of firm-level capabilities and worker skills with a more egalitarian wage structure.

Does a designed financial system impact polluting firms’ employment? Evidence of an experimental economic policy

By examining both high- and low-polluting firms, this paper uncovers the causal effect of an environmental-protection-related financial policy on the employment of firms. Using extensive dynamic panel data of Chinese manufacturing firms, I employ the difference in differences (DID) method to resolve the endogeneity problem and uncover the identification. My identifications show that high-pollution firms’ employment decreased when the green loan policy was implemented. This is caused by higher financial costs and financial constraints which high pollution firms are challenged with. Furthermore, in this investigation the underlying mechanism for the decrease in employment are analysed. The findings show that the decrease in employment can be attributed to the crowding-out effect of investments in fixed and intangible assets. Finally, this study shows that the green loan policy shock and the resulting decrease in employment has a more severe impact on capital-intensive and high-wage firms.

What is the Role of Firm-Specific Pay Policies on the Gender Earnings Gap in Canada?

Using data from the Canadian Employer-Employee Dynamics Database between 2001 and 2015, we examine the impact of firms' hiring and pay-setting policies on the gender earnings gap in Canada. Consistent with the existing literature and following Card, Cardoso, and Kline (2016), we find that firm-specific premiums explain nearly one quarter of the 26.8% average earnings gap between female and male workers. On average, firms' hiring practices – due to difference in the relative proportion of women hired at high-wage firms, or sorting – and pay-setting policies – due to differences in pay by gender within similar firms – each explain about one half of this firm effect. The compositional difference between the two channels varies substantially over the life-cycle, by parental and marital status, and across provinces.

What is the Role of Firm-Specific Pay Policies on the Gender Earnings Gap in Canada?

Using data from the Canadian Employer-Employee Dynamics Database between 2001 and 2015, we examine the impact of firms' hiring and pay-setting policies on the gender earnings gap in Canada. Consistent with the existing literature and following Card, Cardoso, and Kline (2016), we find that firm-specific premiums explain nearly one quarter of the 26.8% average earnings gap between female and male workers. On average, firms' hiring practices – due to difference in the relative proportion of women hired at high-wage firms, or sorting – and pay-setting policies – due to differences in pay by gender within similar firms – each explain about one half of this firm effect. The compositional difference between the two channels varies substantially over the life-cycle, by parental and marital status, and across provinces.

Twisting the Demand Curve: Digitalization and the Older Workforce

This paper uses U.S. Census Bureau panel data that link firm software investment to worker earnings. We regress the log of earnings of workers by age group on the software investment by their employing firm. To unpack the potential causal factors for differential software effects by age group we extend the AKM framework by including job-spell fixed effects that allow for a correlation between the worker-firm match and age and by including time-varying firm effects that allow for a correlation between wage-enhancing productivity shocks and software investments. Within job-spell, software capital raises earnings at a rate that declines post age 50 to about zero after age 65. By contrast, the effects of non-IT equipment investment on earnings increase for workers post age 50. The difference between the software and non-IT equipment effects suggests that our results are attributable to the technology rather than to age-related bargaining power. Our data further show that software capital increases the earnings of high-wage workers relative to low-wage workers and the earnings in high-wage firms relative to low-wage firms, and may thus widen earnings inequality within and across firms.

Minimum Wages and Firm Productivity: Evidence from Vietnamese Manufacturing Firms

ABSTRACTThis paper empirically examines the minimum-wage impact on firm productivity. Using a detailed Vietnamese firm-level dataset from 2010 through 2015, the regression results suggest that firms raise their labor productivity, total factor productivity, capital intensity and revenue in response to increased minimum wage standards. Firms that pay their workers below the minimum wage react more positively in raising their labor productivity than high-wage firms. Minimum wages has had a more pronounced impact on firms’ labor productivity, total factor productivity and capital intensity since the uniform wage rate was introduced for both domestic private and foreign-invested enterprises in 2012.

Changes in Workplace Heterogeneity and How They Widen the Gender Wage Gap

Using linked employer-employee data for West Germany, I investigate the role of growing wage differentials between firms in the slowdown of gender wage convergence since the 1990s. The results show that two factors are at play: first, high-wage firms experience higher wage growth and employ disproportionately more men, and second, male firm premiums grow faster than female premiums in the same firms. These developments were catalyzed by a decline of union coverage, coupled with more firm-specific wage setting in collective bargaining agreements. Taken together, these conditions prevented the gender gap from narrowing by approximately 15 percent between the 1990s and 2000s. (JEL J16, J51, J31, J71)

Unscripted economics in an industrial community

One third of US manufacturing jobs disappeared between 2001 and 2009 and the conventional explanations (low wages overseas, robots taking over) do not apply to the capital goods producers in Keene, New Hampshire, where the author teaches. Local firms compete with high wage counterparts and firms using robots hire people as well. De/reindustrialisation ascertains the cause(s) of industrial contraction – or success. Students visit plants in the local industrial base and conduct oral history interviews, analyse annual reports and apply specific concepts of economic theory. The course is interdisciplinary, involves undergraduate research and civic engagement and uses open education assignments. Unscripted learning has proved the great motivator, as students navigate their oral history interviews and the community presentation. The course succeeds in motivating students and it serves the community, conveys research skills and pushes the teacher to take economic theory in practical directions.

Firming Up Inequality*

AbstractWe use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred due to a rise in the dispersion of average earnings between firms. However, this rising between-firm variance is not accounted for by the firms themselves but by a widening gap between firms in the composition of their workers. This compositional change can be split into two roughly equal parts: high-wage workers became increasingly likely to work in high-wage firms (i.e., sorting increased), and high-wage workers became increasingly likely to work with each other (i.e., segregation rose). In contrast, we do not find a rise in the variance of firm-specific pay once we control for the worker composition in firms. Finally, we find that two-thirds of the rise in the within-firm variance of earnings occurred within mega (10,000+ employee) firms, which saw a particularly large increase in the variance of earnings compared with smaller firms.

Who Works for Whom and the UK Gender Pay Gap?

This study reports novel facts about the UK gender pay gap. We use a representative, longitudinal and linked employer–employee dataset for 2002–2016. Men's average log hourly wage was 22 points higher than women's in this period. We find that 16 per cent of this raw pay gap is accounted for by estimated firm‐specific wage effects. This is almost three times the amount explained by gender occupation differences. When we decompose a pre‐adjusted measure of the pay gap, we find less than 1 percentage point or a 6 per cent share is accounted for by the gender allocation across high‐ and low‐wage firms. In other words, only a small share of what is traditionally referred to as the ‘unexplained’ part of the pay gap is explained by the differences between men and women in whom they work for.

Reallocation and the Role of Firm Composition Effects on Aggregate Wage Dynamics

Aggregate wages display little cyclicality compared to what a standard model would predict. Wage rigidities are an obvious candidate but a recent strand of the literature has emphasized the need to take into account the growing importance of worker composition effects during downturns. With reference to the Italian case we document that also firm composition effects increasingly matter in explaining the aggregate wage dynamics, i.e. aggregate wage growth has been lifted up by the increase in the employment weight of high wage firms. To the extent that this reallocation occurs towards more productive firms, the composition effects may also reflect an efficiency enhancing mechanism. We use a newly available dataset based on social security records covering the universe of Italian employers be-tween 1990 and 2013 and employ a standard measure of allocative efficiency on wages paid across firms. We show that this measure has improved over time since prior to the recent downturn and that it is aligned, at the sectoral level, with measures of productivity growth and market openness to competition. We then focus on the recent downturn and find that large firms were able to adjust wages more than small firms, and that small firms instead adjusted employment to a larger extent. Finally, we document that the continued improvement in the measure of allocative efficiency over this period correlates positively with measures of economic activity (evolution of employment and value added) across sectors.