Workers, Firms and Life-Cycle Wage Dynamics

47 Pages Posted: 2 Apr 2018

See all articles by Paul Bingley

Paul Bingley

Aarhus University - National Centre for Register-Based Research

Lorenzo Cappellari

Catholic University of the Sacred Heart of Milan; University of Essex - Institute for Social and Economic Research (ISER); Institute for the Study of Labor (IZA)

Abstract

Studies of individual wage dynamics typically ignore firm heterogeneity, whereas decompositions of earnings into worker and firm effects abstract from life-cycle considerations. We study firm effects in individual wage dynamics using administrative data on the population of Italian employers and employees. We propose a novel identification strategy for firm-related wage components exploiting the informative content of the wage covariance structure of coworkers. Wage inequality increases three-fold over the working life; firm effects are predominant while young, but sorting of workers into firms becomes increasingly important, explaining the largest share of lifetime inequality. Static models that do not allow for life-cycle dynamics underestimate the importance of sorting and overstate match and firm effects.

Keywords: wage inequality, wage dynamics, co-workers' covariance

JEL Classification: J24, J31

Suggested Citation

Bingley, Paul and Cappellari, Lorenzo, Workers, Firms and Life-Cycle Wage Dynamics. IZA Discussion Paper No. 11402, Available at SSRN: https://ssrn.com/abstract=3153366

Paul Bingley (Contact Author)

Aarhus University - National Centre for Register-Based Research ( email )

8000 Ã…rhus C, 8210
Denmark

Lorenzo Cappellari

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Institute for the Study of Labor (IZA)

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

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