Wages, Productivity, and the Dynamic Interaction of Businesses and Workers

52 Pages Posted: 3 Nov 2000  

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Julia Lane

Wagner Graduate School of Public Service; Institute for the Study of Labor (IZA)

James Spletzer

United States Department of Labor

Date Written: November 2000

Abstract

This paper exploits a new matched universal and longitudinal employer-employee database at the US Census Bureau to empirically investigate the link between firms' choice of worker mix and the implied relationships between productivity and wages. We particularly focus on the decision making process of new firms and examine the role of both learning and selection. Our key empirical results are: (i) We find substantial and persistent differences in earnings per worker, output per worker, and worker mix across businesses within narrowly defined industries, which remain even after controlling for other observable characteristics. (ii) We find that new businesses exhibit even greater heterogeneity in earnings and productivity than do mature businesses, but that they adjust to the mature business pattern as they age. The adjustment process, while different for earnings and productivity, is consistent both with firms learning as they age and with the exit of mistake' prone firms. (iii) The dynamics of the reduction in productivity heterogeneity of new firms as they age is both complex and very different from the dynamic reduction of earnings heterogeneity.

Suggested Citation

Haltiwanger, John and Lane, Julia and Spletzer, James, Wages, Productivity, and the Dynamic Interaction of Businesses and Workers (November 2000). NBER Working Paper No. w7994. Available at SSRN: https://ssrn.com/abstract=248600

John C. Haltiwanger (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Institute for the Study of Labor (IZA) ( email )

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Julia Lane

Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org

James Spletzer

United States Department of Labor ( email )

2 Massachusetts Avenue, NE
Washington, DC 20212
United States
202-606-7393 (Phone)
202-606-4602 (Fax)

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