It ain't where you're from it's where you're at: firm effects, state dependence, and the gender wage gap

Sequential auction models of labour market competition predict that the wages required to successfully poach a worker from a rival employer will depend on the productivities of both the poached and the poaching firms. We develop a theoretically grounded extension of the two-way fixed effects model of Abowd et al. (1999) in which log hiring wages include a worker fixed effect, a fixed effect for the ‘destination’ firm hiring the worker, and a fixed effect for the ‘origin’ firm, or labour market state, from which the worker was hired. Fitting the model to Italian social security records, origin effects only explain 0.7 per cent of the variance of hiring wages, while destination effects explain about 23 per cent of the variance. Studying a cohort of workers entering the Italian labour market in 2005, we find that differences in origin effects yield essentially no contribution to the evolution of the gender gap in hiring wages, while differences in destination effects explain the majority of the gap at the time of labour market entry. These results suggest that where a worker is hired from tends to be relatively inconsequential for their wages in comparison to where they are currently employed.