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Unobserved Individual and Firm Heterogeneity in Wage and Job‐Duration Functions: Evidence from German Linked Employer–Employee Data

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  • Thomas Cornelißen
  • Olaf Hübler

Abstract

We analyse the correlations between individual and firm fixed effects, and wage and job-duration functions. Our results for large firms suggest that low-wage firms tend to be stable firms, suggesting that lower wages can buy job stability. Furthermore, high-wage workers sort into the stable low-wage firms. Our interpretation is that high-wage workers have a higher wage to insure against job loss and can afford more easily to forgo wages in favour of job stability. This may provide an explanation of the puzzle identified in previous literature that high-wage workers are matched to low-wage firms.
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  • Thomas Cornelißen & Olaf Hübler, 2011. "Unobserved Individual and Firm Heterogeneity in Wage and Job‐Duration Functions: Evidence from German Linked Employer–Employee Data," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 469-489, November.
    • Handle: RePEc:bla:germec:v:12:y:2011:i:4:p:469-489
    DOI: j.1468-0475.2010.00528.x
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    2. Davidson, Carl & Heyman, Fredrik & Matusz, Steven & Sjöholm, Fredrik & Zhu, Susan Chun, 2014. "Globalization and imperfect labor market sorting," Journal of International Economics, Elsevier, vol. 94(2), pages 177-194.
    3. Michele Battisti, 2016. "Individual Wage Growth: The Role of Industry Experience," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(1), pages 40-70, January.
    4. Philipp Ehrl, 2019. "On The Use Of Firm Fixed Effects As A Productivity Measure For Analyzing Labor Market Matching," Bulletin of Economic Research, Wiley Blackwell, vol. 71(2), pages 195-208, April.
    5. Simone Balestra & Uschi Backes-Gellner, 2017. "When a Door Closes, a Window Opens? Long-Term Labor Market Effects of Involuntary Separations," German Economic Review, Verein für Socialpolitik, vol. 18(1), pages 1-21, February.
    6. Michele Campolieti, 2018. "Matching and Inverse Propensity Weighting Estimates of the Union Wage Premium: Evidence from Canada, 1997–2014," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 57(1), pages 101-130, January.
    7. Bellmann, Lisa & Bellmann, Lutz & Hübler, Olaf, 2023. "Labour Mobility in German Establishments during the COVID-19 Crisis: Panel Data Analyses with Special Reference to Short-Time Work and Working from Home," IZA Discussion Papers 15935, Institute of Labor Economics (IZA).
    8. Gaure, Simen, 2013. "OLS with multiple high dimensional category variables," Computational Statistics & Data Analysis, Elsevier, vol. 66(C), pages 8-18.

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