Firm Pay Dynamics

Engbom, Niklas and Moser, Christian (2020): Firm Pay Dynamics.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Wage Determination, Mobility, Worker and Firm Heterogeneity, Two-Way Fixed Effects Model, AKM, Firm Dynamics, Inequality Trends, Income Risk, Insurance within the Firm
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M13 - New Firms ; Startups

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