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The Role of Comparative Advantage and Learning in Wage Dynamics and Intrafirm Mobility: Evidence from Germany

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Author Info
Stéphanie Lluis (Economics Department, Université de Montréal)

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Abstract

This paper analyzes the dynamics of wages and workers' mobility within firms with a hierarchical structure of job levels. The theoretical model proposed by Gibbons and Waldman (1999), that combines the notions of human capital accumulation, job rank assignments based on comparative advantage and learning about workers' abilities, is implemented empirically to measure the importance of these elements in explaining the wage policy of firms. Survey data from the GSOEP (German Socio-Economic Panel) are used to draw conclusions on the common features characterizing the wage policy of firms from a large sample of firms. The GSOEP survey also provides information on the worker's rank within his firm which is usually not available in other surveys. The results are consistent with non-random selection of workers onto the rungs of a job ladder. There is no direct evidence of learning about workers' unobserved abilities but the analysis reveals that unmeasured ability is an important factor driving wage dynamics. Finally, job rank effects remain significant even after controlling for measured and unmeasured characteristics.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number C2-3.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:c2-3

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Related research
Keywords: Wage dynamics; intra-firm mobility; human capital accumulation; unobserved heterogeneity; learning;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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.:
  1. Ann P. Bartel & George J. Borjas, 1982. "Wage Growth and Job Turnover: An Empirical Analysis," NBER Working Papers 0285, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Harris, Milton & Holstrom, Bengt, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 49(3), pages 315-33, July. [Downloadable!] (restricted)
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  4. Edward P. Lazear, 2001. "The Peter Principle: Promotions and Declining Productivity," NBER Working Papers 8094, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June. [Downloadable!] (restricted)
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  6. Farber, Henry S & Gibbons, Robert, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1007-47, November. [Downloadable!] (restricted)
  7. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Daniel Parent, 1995. "Matching, Human Capital, and the Covariance Structure of Earnings," CIRANO Working Papers 95s-25, CIRANO. [Downloadable!]
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  9. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April. [Downloadable!] (restricted)
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  11. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2002. "Comparative Advantage, Learning, and Sectoral Wage Determination," NBER Working Papers 8889, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April. [Downloadable!] (restricted)
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  15. Neal, Derek, 1999. "The Complexity of Job Mobility among Young Men," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 237-61, April. [Downloadable!] (restricted)
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  16. Bauer, Thomas K. & Haisken-DeNew, John P., 2000. "Employer Learning and the Returns to Schooling," IZA Discussion Papers 146, Institute for the Study of Labor (IZA). [Downloadable!]
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  17. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June. [Downloadable!] (restricted)
  18. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April. [Downloadable!] (restricted)
  19. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-66, July.
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  21. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March. [Downloadable!] (restricted)
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  22. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May. [Downloadable!] (restricted)
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  23. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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  24. Lemieux, Thomas, 1998. "Estimating the Effects of Unions on Wage Inequality in a Panel Data Model with Comparative Advantage and Nonrandom Selection," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 261-91, April. [Downloadable!] (restricted)
  25. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  26. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February. [Downloadable!] (restricted)
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  27. Pierre-Andre Chiappori & Bernard Salanie & Julie Valentin, 1999. "Early Starters versus Late Beginners," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 731-760, August. [Downloadable!] (restricted)
  28. Robert Gibbons, 1997. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  29. Robert Gibbons & Michael Waldman, 1998. "A Theory of Wage and Promotion Dynamics in Internal Labor Markets," NBER Working Papers 6454, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2002. "Comparative Advantage, Learning, and Sectoral Wage Determination," CIRANO Working Papers 2002s-35, CIRANO. [Downloadable!]
    Other versions:
  2. Robert Gibbons & Michael Waldman, 2003. "Enriching a Theory of Wage and Promotion Dynamics Inside Firms," NBER Working Papers 9849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Ana Ferrer & Stephanie Lluis, . "Should Workers Care About Firm Size?," Working Papers 0204, Industrial Relations Center, University of Minnesota (Twin Cities Campus). [Downloadable!]
    Other versions:
  4. António Dias da Silva & Bas van der Klaauw, 2006. "Wage Dynamics and Promotions Inside and Between Firms," IZA Discussion Papers 2351, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Dohmen, Thomas J., 2003. "Performance, Seniority and Wages: Formal Salary Systems and Individual Earnings Profiles," IZA Discussion Papers 935, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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