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The Importance of Firms in Wage Determination

  • Gruetter, Max


    (Lucerne Statistics)

  • Lalive, Rafael


    (University of Lausanne)

Firms are central to many theories of the labor market. However, the extent to which firms affect wages has only recently been explored using matched employer-employee data. This paper investigates (i) the importance of firms in explaining wage differences across individuals and industries, and (ii) how the nature of interfirm mobility – job-to-job vs. job-unemployment-job – affects the relative importance of firms and workers in wage determination. Results indicate that (i) firms are much more important in explaining the variance of average wages across industries rather than individuals, and (ii) using job-to-job transitions reduces the importance of firm wage policies in explaining differences.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1367.

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Length: 33 pages
Date of creation: Oct 2004
Date of revision:
Publication status: published in: Labour Economics, 2009, 16 (2), 149-160
Handle: RePEc:iza:izadps:dp1367
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