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The Peer Effect on Future Wages in the Workplace

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  • Long Hong
  • Salvatore Lattanzio

Abstract

This paper examines workplace peer effects in two directions, leveraging employer‐employee data for Italy. First, using a novel estimation approach and addressing endogenous worker‐peer sorting, we estimate that a 10% increase in peer quality raises one's wage by 1.8% in the next year. The effect declines to 0.7% after 5 years. Second, in an event study around mobility episodes, we quantify wage changes associated with the entry and leave of high‐quality and low‐quality workers. Hiring high‐quality workers positively affects peer wages, as does separating from low‐quality workers. Movers experience immediate gains upon moving to high‐quality peer groups.

Suggested Citation

  • Long Hong & Salvatore Lattanzio, 2025. "The Peer Effect on Future Wages in the Workplace," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(5), pages 521-539, August.
    • Handle: RePEc:wly:japmet:v:40:y:2025:i:5:p:521-539
    DOI: 10.1002/jae.3127
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