Workers, Firms and Life-Cycle Wage Dynamics
Speaker(s)Lorenzo Cappellari (Università Cattolica Milan, Italy)
LocationTinbergen Institute Amsterdam, room 1.01
Date and time
June 18, 2019
16:00 - 17:15
Studies of individual wage dynamics typically ignore firm heterogeneity, whereas decompositions of earnings into worker and firm effects abstract from life-cycle considerations. We study firm effects in individual wage dynamics using administrative data on the population of Italian employers and employees. We propose a novel identification strategy for firm-related wage components exploiting the informative content of the wage covariance structure of coworkers. Wage inequality increases three-fold over the working life; firm effects are predominant while young, but sorting of workers into firms becomes increasingly important, explaining the largest share of lifetime inequality. Static models that do not allow for life-cycle dynamics underestimate the importance of sorting and overstate match and firm effects.