DP14240 Earnings Dynamics and Firm-Level Shocks

Author(s): Benjamin Friedrich, Lisa Laun, Costas Meghir, Luigi Pistaferri
Publication Date: December 2019
Keyword(s): Matched Employer Employee Data
JEL(s): H51, H55, I18, J26
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14240

We use matched employer-employee data from Sweden to study the role of the firm in affecting the stochastic properties of wages. Our model accounts for endogenous participation and mobility decisions. We find that firm-specific permanent productivity shocks transmit to individual wages, but the effect is mostly concentrated among the high-skilled workers; firm-specific temporary shocks mostly affect the low-skilled. The updates to worker-firm specific match effects over the life of a firm-worker relationship are small. Substantial growth in earnings variance over the life cycle for high-skilled workers is driven by firms accounting for 44% of cross-sectional variance by age 55.