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The Role of Comparative Advantage and Learning in Wage Dynamics and Intra-Firm Mobility: Evidence from Germany

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  • Stephanie Lluis

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Abstract

This paper analyzes the dynamics of wages and worker mobility within firms with hierarchical structures of job levels. The paper empirically implements the theoretical model proposed by Gibbons and Waldman (1999) that combines the notions of human capital accumulation, job rank assignment based on comparative advantage, and learning about workers' ability. The paper measures the importance of these elements in explaining intra-firm wage and mobility dynamics using survey data from the German Socio-Economic Panel (GSOEP). The use of this data set makes it possible to examine this issue over a large sample of firms and draw conclusions about the common features characterizing firms' wage policy. The GSOEP survey also provides information about workers' job ranks within the firm that is unavailable in most surveys. The results of the estimation are consistent with non-random selection of workers onto the rungs of the firm's job ladder. There is no direct evidence of learning about workers' unobserved ability, but the analysis reveals the unmeasured ability is an important factor driving wage dynamics. Job rank effects remain significant even after controlling for measured and unmeasured characteristics.

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File URL: http://www.legacy-irc.csom.umn.edu/RePEC/hrr/papers/0103.pdf
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Bibliographic Info

Paper provided by Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus) in its series Working Papers with number 0103.

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Handle: RePEc:hrr:papers:0103

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Keywords: wage dynamics; intra-firm mobility; human capital accumulation; unobserved heterogeneity; learning;

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  3. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
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  5. Robert Gibbons & Lawrence F. Katz, 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," NBER Working Papers 3182, National Bureau of Economic Research, Inc.
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  10. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2005. "Comparative Advantage, Learning, and Sectoral Wage Determination," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 681-724, October.
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  13. Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
  14. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc.
  15. 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.
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  18. Parent, D., 1995. "Matching, Human capital, and the Covariance Structure of Earnings," Cahiers de recherche 9509, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  19. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April.
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  21. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  22. 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.
  23. Derek Neal, 1998. "The Complexity of Job Mobility Among Young Men," NBER Working Papers 6662, National Bureau of Economic Research, Inc.
  24. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  25. Edward P. Lazear, 2001. "The Peter Principle: Promotions and Declining Productivity," NBER Working Papers 8094, National Bureau of Economic Research, Inc.
  26. Gary S. Becker, 1975. "Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, 2nd ed," NBER Books, National Bureau of Economic Research, Inc, number beck75-1, July.
  27. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June.
  28. 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.
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