The Importance of Firms in Wage Determination

By Max Gruetter, Rafael Lalive. Social Science Research Network, 2009

124 citations recorded by the source corpus.

Firms are central to many theories of the labor market. However, the actual degree to which firms shape the structure of wages is still not well understood. This paper investigates (i) the importance of firms in explaining wage differences across individuals and industries, and (ii) how the nature of interfirm mobility - job-to-job vs. job-unemployment-job - affects the relative importance of firms and workers in wage determination. Results indicate that (i) firms are much more important in explaining the variance of average wages across industries rather than across individuals, and (ii) using job-to-job transitions to identify the firm's contribution to the wage rate reduces the importance of firm wage policies in explaining wage differences by as much as 50%.

Subfields: Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/906c1ff690683c591033eb08d597bade7033b908

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Citations in the corpus

It's Where You Work: Increases in Earnings Dispersion Across Establishments and Individuals in the U.S (2014, background): “…role in wage setting include Groschen (1991), Davis and Haltiwanger (1991), Abowd et al (1999), Hellerstein et al (1999), Lane et al (2007), and Gruetter and LaLive (2009) following the early works on inter-industry wage differentials, Bell and Freeman (1991), Dickens and Katz (1987), Krueger…”
Firms and the Decline in Earnings Inequality in Brazil (2017, unknown): “In addition, Helpman et al. (2013) argue that trade reforms contributed to the rise in income inequality seen in the late 1980s and early 1990s, and later to the start of the decline in wage dispersion in 1995.”
Estimation of a Roy/Search/Compensating Differential Model of the Labor Market (2020, background): “Important examples are Gruetter and Lalive (2004), Andrews, Gill, Schank, and Upward (2008), Sørensen and Vejlin (2013), Card, Heining, and Kline (2013), and Card, Cardoso, and Kline (2015).”
A Distributional Framework for Matched Employer Employee Data (2019, methodology): “In this paper, we introduce an empirical framework with two-sided unobserved heterogeneity 1Applications of the method to earnings data include Gruetter and Lalive (2009), Mendes et al. (2010), Woodcock (2008), Card et al. (2013), Goldschmidt and Schmieder (2015), Song et al. (2015), and Sorkin…”
Matching, sorting and wages (2011, background): “3See Goux and Maurin (1999) and Abowd, Kramarz, Pérez-Duarte, and Schmutte (2009) who present results for French and U.S. matched employer-employee data, and Gruetter and Lalive (2009) for Austrian data.”
Job Referral Networks and the Determination of Earnings in Local Labor Markets (2014, result): “Their finding parallels those of related tests by Gruetter and Lalive (2009) for Germany, Rothstein (2010) in matched student-teacher data, and Woodcock (2008) on the importance of match-specific heterogeneity.”
High wage workers and low wage firms: negative assortative matching or limited mobility bias? (2008, background): “Gruetter and Lalive (2004) reported a correlation of −0:27 for Austrian data.”