Worker and Firm Heterogeneity in Wage Growth: An AKM approach
AbstractThis paper estimates a wage growth equation containing human capital variables known from the traditional Mincerian wage equation with year, worker and firm fixed effects included as well. The paper thus contributes further to the large empirical literature on unobserved heterogeneity following the work of Abowd, Kramarz, and Margolis (1999). Our main contribution is to extend the analysis from wage levels to wage growth. The specification enables us to estimate the individual specific and firm specific fixed effects and their degree of explanation on wage growth. The analysis is conducted using Danish longitudinal matched employer-employee data from 1980 to 2006. We find that the worker fixed effect dominates both the firm fixed effect and the effect of the observed covariates. Worker effects are estimated to explain seven to twelve per cent of the variance in wage growth while firm effects are estimated to explain four to ten per cent. We furthermore find a negative correlation between the worker and firm effects, as do nearly all authors examining wage level equations.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2010-13.
Date of creation: 27 Aug 2010
Date of revision:
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Web page: http://www.econ.au.dk/afn/
MEE data; fixed effects; wage growth;
Other versions of this item:
- Kenneth Lykke Sørensen & Rune Vejlin, 2011. "Worker and Firm Heterogeneity in Wage Growth: An AKM Approach," LABOUR, CEIS, vol. 25(4), pages 485-507, December.
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-BEC-2010-08-28 (Business Economics)
- NEP-HRM-2010-08-28 (Human Capital & Human Resource Management)
- NEP-LAB-2010-08-28 (Labour Economics)
- NEP-LTV-2010-08-28 (Unemployment, Inequality & Poverty)
- NEP-SBM-2010-08-28 (Small Business Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Torben Sørensen & Rune Vejlin, 2009. "The Importance of Worker, Firm and Match Fixed Effects in the Formation of Wages," Economics Working Papers 2009-11, School of Economics and Management, University of Aarhus.
- Postel-Vinay, Fabien & Robin, Jean-Marc, 2002.
"Equilibrium Wage Dispersion with Worker and Employer Heterogeneity,"
CEPR Discussion Papers
3548, C.E.P.R. Discussion Papers.
- Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
- Postel-Vinay, F. & Robin, J.-M., 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
- Krishna, Pravin & Poole, Jennifer P. & Senses, Mine Zeynep, 2011. "Trade liberalization, firm heterogeneity, and wages : new evidence from matched employer-employee data," Policy Research Working Paper Series 5711, The World Bank.
- Gregory Veramendi, 2012. "Labor Market Dynamics: A Model of Search and Human Capital Accumulation," 2012 Meeting Papers 1059, Society for Economic Dynamics.
- Pravin Krishna & Jennifer P. Poole & Mine Zeynep Senses, 2011. "Wage Effects of Trade Reform with Endogenous Worker Mobility," NBER Working Papers 17256, National Bureau of Economic Research, Inc.
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