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Life-Cycle Wage Growth and Firm Productivity in Developed and Developing Economies

Author

Listed:
  • Holzheu, Kerstin

    (Sciences Po, Paris)

  • Muñoz-Morales, Juan

    (IÉSEG School of Management)

Abstract

Life-cycle wage growth varies substantially across countries. We examine the role of the firm productivity distribution by introducing a random-search model that disentangles firm heterogeneity, on-the-job learning, and labor-market frictions. Estimates for Brazil, Colombia, and the United States reveal two distinct disadvantages: a long left tail of low-paying firms in Brazil and a highly compressed firm ladder in Colombia. Counterfactuals show that equating each country's firm distribution to that of the United States closes most of the cross-country gap in life-cycle wage growth: Brazil's wage growth rises from 73 to 103 percent of the U.S. value, and Colombia's from 52 to 115 percent. These results are robust to alternative distributional assumptions, education residualization, and external discipline on the productivity tail.

Suggested Citation

  • Holzheu, Kerstin & Muñoz-Morales, Juan, 2026. "Life-Cycle Wage Growth and Firm Productivity in Developed and Developing Economies," IZA Discussion Papers 18970, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18970
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    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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