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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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  12. Andrews, Martyn J. & Schank, Thorsten & Upward, Richard, 2004. "Practical estimation methods for linked employer-employee data," Discussion Papers 29, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
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  14. Alan Carruth & Bill Collier & Andy Dickerson, 1999. "Inter-industry Wage Differences and Individual Heterogeneity: How Competitive is Wage Setting in the UK?," Studies in Economics 9914, School of Economics, University of Kent.
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  24. Rosen, Sherwin, 1987. "The theory of equalizing differences," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 12, pages 641-692 Elsevier.
  25. John J. Antel, 1991. "The wage effects of voluntary labor mobility with and without intervening unemployment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 44(2), pages 299-306, January.
  26. Kim, Dae Il, 1998. "Reinterpreting Industry Premiums: Match-Specific Productivity," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 479-504, July.
  27. Groshen, Erica L, 1991. "Sources of Intra-industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 869-84, August.
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  30. repec:fth:inseep:2001-16 is not listed on IDEAS
  31. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
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