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Persistence of Firm and Individual Wage Components

Author

Listed:
  • Leonard, J.S.
  • Van Audenrode, M.

Abstract

Using longitudinal matched employer-employee data, we show that a standard wage equation ignoring firm and individual effects yields a baseline explaining 36 percent of wage variation. Firm specific wage components, including common firm-wide omitted human capital, accounts for an additional 22 percent. Firm pay differentials are large and persistent. Most of these firm differentials reflect omitted general human capital. We also show the importance of asymmetric information and unobserved heterogeneity in wage setting mechanisms.

Suggested Citation

  • Leonard, J.S. & Van Audenrode, M., 1996. "Persistence of Firm and Individual Wage Components," Papers 9607, Laval - Recherche en Politique Economique.
    • Handle: RePEc:fth:lavape:9607
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    Cited by:

    1. Hübler, Dominik & Hübler, Olaf, 2006. "Is There a Trade-off Between Job Security and Wages in Germany and the UK?," IZA Discussion Papers 2241, Institute of Labor Economics (IZA).
    2. Diana Lúcia Gonzaga da Silva & Carlos Roberto Azzoni, 2016. "Location and wages: the contribution of firm and worker effects in Brazil," Working Papers, Department of Economics 2016_41, University of São Paulo (FEA-USP).
    3. Josef Zweimuller & Rudolf Winter-Ebmer, 1999. "Firm-Size Wage Differentials in Switzerland: Evidence from Job-Changers," American Economic Review, American Economic Association, vol. 89(2), pages 89-93, May.

    More about this item

    Keywords

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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