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Firm pay dynamics

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  • Engbom, Niklas
  • Moser, Christian
  • Sauermann, Jan

Abstract

We study the nature of firm pay dynamics. To this end, we propose a statistical model that extends the seminal framework by Abowd et al. (1999) to allow for idiosyncratically time-varying firm pay policies. We estimate the model using linked employer–employee data for Sweden from 1985 to 2016. By drawing on detailed firm financials data, we show that firms that become more productive and accumulate capital raise pay, whereas firms lower pay as they add workers. A secular increase in firm-year pay dispersion in Sweden since 1985 is accounted for by greater persistence of firm pay among incumbent firms as well as greater dispersion in firm pay among entrant firms, as opposed to more volatile firm pay.

Suggested Citation

  • Engbom, Niklas & Moser, Christian & Sauermann, Jan, 2023. "Firm pay dynamics," Journal of Econometrics, Elsevier, vol. 233(2), pages 396-423.
    • Handle: RePEc:eee:econom:v:233:y:2023:i:2:p:396-423
    DOI: 10.1016/j.jeconom.2022.01.012
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    3. Barth, Erling & Roed, Marianne & Schone, Pal & Umblijs, Janis, 2020. "How Robots Change Within-Firm Wage Inequality," IZA Discussion Papers 13605, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Earnings inequality; Worker and firm heterogeneity; Firm dynamics; Linked employer–employee data; AKM;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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