Unobserved Individual and Firm Heterogeneity in Wage and Job-Duration Functions: Evidence from German Linked Employer–Employee Data

Cornelißen Thomas and Olaf Hübler
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Cornelißen Thomas: University College London, Gower St, Bloomsbury,London WC1E 6BT, United Kingdom of Great Britain and Northern Ireland

German Economic Review, 2011, vol. 12, issue 4, 469-489

Abstract: We analyse the correlations between individual and firm fixed effects, and wage and job-duration functions. Our results for large firms suggest that low-wage firms tend to be stable firms, suggesting that lower wages can buy job stability. Furthermore, high-wage workers sort into the stable low-wage firms. Our interpretation is that high-wage workers have a higher wage to insure against job loss and can afford more easily to forgo wages in favour of job stability. This may provide an explanation of the puzzle identified in previous literature that high-wage workers are matched to low-wage firms.

Keywords: Linked employer-employee data; unobserved worker and firm heterogeneity; job stability; wages (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1111/j.1468-0475.2010.00528.x

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