Firm Pay Dynamics

50 Pages Posted: 2 Mar 2020

See all articles by Niklas Engbom

Niklas Engbom

Federal Reserve Bank of Minneapolis

Christian Moser

Columbia University

Date Written: February 3, 2020


We study the nature of firm pay dynamics using matched employer-employee data from Sweden, including rich, administrative firm financial data. To this end, we propose and estimate a statistical model that extends the seminal framework by Abowd, Kramarz, and Margolis (1999a, henceforth AKM) to flexibly account for time-varying firm pay policies. We validate our approach by showing that firm-year pay variation is systematically related to firm financial performance. Subsequently, we apply our methodology to assess the role of firm pay dynamics in accounting for a rise in earnings inequality in Sweden, to investigate the properties of the distribution of within-firm pay differences over time, to measure the degree of firm pay mobility, and to quantify the relative contribution of ex-ante versus ex-post heterogeneity towards firm pay differences over the firm life cycle. We conclude that no more than two thirds of firm pay heterogeneity are permanent, with persistent and transitory fluctuations in firm pay constituting the remainder.

Keywords: Wage Determination, Mobility, Worker and Firm Heterogeneity, Two-Way Fixed Effects Model, AKM, Firm Dynamics, Inequality Trends, Income Risk, Insurance within the Firm

JEL Classification: J31, D22, D31, E24, M13

Suggested Citation

Engbom, Niklas and Moser, Christian, Firm Pay Dynamics (February 3, 2020). Available at SSRN: or

Niklas Engbom

Federal Reserve Bank of Minneapolis ( email )

120 Hennepin ave
Minneapolis, MN 55401
United States

Christian Moser (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States
6093564653 (Phone)


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