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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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    3. Nilsen, Øivind Anti & Raknerud, Arvid & Skjerpen, Terje, 2011. "Using the Helmert-transformation to reduce dimensionality in a mixed model: Application to a wage equation with worker and firm heterogeneity," Discussion Paper Series in Economics 11/2011, Norwegian School of Economics, Department of Economics, revised 04 Oct 2011.
    4. 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).
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    6. 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.
    7. 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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