It Ain’t Where You’re from It’s Where You’re At: Firm Effects, State Dependence, and the Gender Wage Gap

75 Pages Posted: 6 Jul 2022

See all articles by Sabrina Lucia Di Addario

Sabrina Lucia Di Addario

Bank of Italy

Patrick Kline

University of California, Berkeley

Raffaele Saggio

University of British Columbia (UBC)

Mikkel Sølvsten

University of Wisconsin - Madison

Date Written: June 22, 2022

Abstract

Sequential auction models of labour market competition predict that the wages required to successfully poach a worker from a rival employer will depend on the productivities of both the poached and the poaching firms. We develop a theoretically grounded extension of the two-way fixed effects model of Abowd et al. (1999) in which log hiring wages include a worker fixed effect, a fixed effect for the ‘destination’ firm hiring the worker, and a fixed effect for the ‘origin’ firm, or labour market state, from which the worker was hired. Fitting the model to Italian social security records, origin effects only explain 0.7 per cent of the variance of hiring wages, while destination effects explain about 23 per cent of the variance. Studying a cohort of workers entering the Italian labour market in 2005, we find that differences in origin effects yield essentially no contribution to the evolution of the gender gap in hiring wages, while differences in destination effects explain the majority of the gap at the time of labour market entry. These results suggest that where a worker is hired from tends to be relatively inconsequential for their wages in comparison to where they are currently employed.

Keywords: hiring wages, sequential auctions, firm effects, bargaining, gender wage gap

JEL Classification: J31, D22

Suggested Citation

Di Addario, Sabrina Lucia and Kline, Patrick and Saggio, Raffaele and Sølvsten, Mikkel, It Ain’t Where You’re from It’s Where You’re At: Firm Effects, State Dependence, and the Gender Wage Gap (June 22, 2022). Bank of Italy Temi di Discussione (Working Paper) No. 1374, Available at SSRN: https://ssrn.com/abstract=4154472 or http://dx.doi.org/10.2139/ssrn.4154472

Sabrina Lucia Di Addario (Contact Author)

Bank of Italy ( email )

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HOME PAGE: http://sites.google.com/site/sabrinadiaddario/

Patrick Kline

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Raffaele Saggio

University of British Columbia (UBC) ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

Mikkel Sølvsten

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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