Internal and External Labor Markets: An Analysis of Matched Longitudinal Employer-Employee Data
23 Pages Posted: 15 Sep 2000 Last revised: 6 Oct 2010
Date Written: July 1997
We decompose the real annual full time compensation costs of 1.1 million French workers followed over 12 years into a part that reflects their external opportunity wage and a part that reflects their internal wage rate. Using these components of compensation we investigate the extent to which firm-size wage differentials and inter-industry wage differentials are due to variability in the external wage (person effects) versus variability in the internal wage (firm effects). For France, we find that most of the firm-size wage effect and most of the inter-industry wage effect is due to person effects differences in the external wage rates.
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