CFDP 2175

Earnings Dynamics and Firm-Level Shocks


Publication Date: April 2019

Pages: 63


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.

Keywords: Earnings dynamics, Inequality, Earnings dispersion, Rent sharing, Matched employer-employee data, competition in labor markets, Lifecycle wage growth, Lifecycle wage dispersion

JEL Classification Codes: J24 J31, J62, J63, J64

JEL Classification Codes: J24J31J62J63J64