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The Relative Importance of Employer and Employee Effects on Compensation: A Comparison of France and the United States

  • Abowd, John M.
  • Kramarz, Francis
  • Margolis, David N.
  • Troske, Kenneth R.

Using individual data on compensation, matched with establishment and firm data on performance and inputs, e compare the French and American pay systems. The compensation measures are decomposed into components related to measured individual characteristics, establishment–enterprise effects, and a residual. In France, the compensation outcomes are more compressed than in the United States. For France, individual characteristics and establishment effects explain more of the variability in compensation outcomes than in the United States. The observable and unobservable components of compensation are identically correlated in the two countries. The relations among compensation components (individual and establishment) and firm performance outcomes (value-added per worker, sales per worker, and profit per unit of capital) exhibit some important similarities and differences between the countries. Higher paid workers, either because of individual characteristics or establishment effects, are employed in firms that are more productive. Higher pay due to enterprise heterogeneity is associated with higher profitability in France but lower profitability in the United States.

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 15 (2001)
Issue (Month): 4 (December)
Pages: 419-436

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Handle: RePEc:eee:jjieco:v:15:y:2001:i:4:p:419-436
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