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High Wage Workers and High Wage Firms

  • John M. Abowd
  • Francis Kramarz
  • David N. Margolis

Using a longitudinal sample of one million French workers and 500,000 employing firms, the authors decompose real total annual compensation per worker into components: observable employee characteristics, personal heterogeneity, firm heterogeneity, and residual. Unobserved personal heterogeneity is a very important source of wage variation. Unobserved firm heterogeneity, while important, is not as important as person effects. Enterprises that hire high-wage workers are more productive but not more profitable. Enterprises that pay higher wages, controlling for person effects, are more productive and more profitable. Person effects explain about 90 percent of interindustry and firm-size wage differences while firm effects explain substantially less.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 67 (1999)
Issue (Month): 2 (March)
Pages: 251-334

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Handle: RePEc:ecm:emetrp:v:67:y:1999:i:2:p:251-334
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  1. Ronald G. Ehrenberg & George T. Milkovich, 1987. "Compensation and Firm Performance," NBER Working Papers 2145, National Bureau of Economic Research, Inc.
  2. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-80, October.
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  12. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  13. Jonathan S. Leonard, 1990. "Executive pay and firm performance," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 13-29, February.
  14. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  15. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
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