Job Changes and Wage Dynamics

In this paper we investigate the relation between wage growth and labour mobility on a panel of Italian dependent workers observed between 1986 and 1991. We use an employer-employee linked panel of 30167 workers, built from Italian Social Security (INPS) administrative sources. In order to investigate the impact of individual vs. firm characteristics on wage dynamics, we decompose individual wage change 1986-91 in two parts: the mean wage growth observed across firms of origin and firms of destination (the two coincide for the stayers), and the wage premium gained over the mean wage change by movers attributable to their own personal characteristics. Our main findings may be summarized as follows: 1 In general, movers do better than stayers at young age (20-30), but the difference tends to vanish as age progresses; 2 mover-stayer differentials are larger among white-collars than blue-collars, in line with the higher variance of earnings of the former; 3 total wage growth is driven by the wage - firm size positive correlation only for the blue-collars: job-switches from small to large firms often yield substantial pay improvements relative to stayers; job switches from large to small size often end up in wage cuts. For the white-collars, however, job changes in either direction tend to improve onÈs position relative to stayers; 4 there is a quasi-reverse pattern on the individual premiums of the blue-collars (switches from small to large carry negative premiums, from large to small positive). This is likely to be a consequence of firm-based wage policies, the impact of which by far exceeds that attributable to individual characteristics; 5 personal characteristics contribute, instead, to determine the white-collars' individual premiums. Job changes of adult and mature workers, presumably endowed with skills and experience, result in sizeable wage gains; 6 all workers employed at firms that either close down or go through drastic employment cuts during the observation period suffer wage losses; 7 prolonged unemployment spells have somewhat of a negative impact on the wage growth of white-collar employees (up to 5 p.p.), almost none on the blue-collars; 8 a certain amount of job-switching has a positive effect on the wage growth of the younger white-collars. If job changes become too frequent, however, its positive impact vanishes; 9 we find a rather strong effect of initial conditions on the wage profile of blue-collar employees, and almost none on the white-collars'; 10 there is evidence of a trade-off between job security and pay in concomitance with a job-to-job switch. When adverse shocks are in sight - as was the beginning of the Nineties - it is reasonable that people may leave their current position, if it is perceived at risk, giving up some pay for longer expected tenure, or may choose to accept a higher pay with a less reliable (i.e. more exposed to short-term fluctuations) employer. At the end of the paper I argue that there are reasons to believe that the extent of labor market segmentation may be increasing in the EU as a consequence of policies aiming at helping entry of youth into employment.