Reallocation and the Role of Firm Composition Effects on Aggregate Wage Dynamics

Effrosyni Adamopoulou, Bobbio Emmanuele (), Marta De Philippis and Giorgi Federico ()
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Bobbio Emmanuele: Directorate General for Economics, Statistics and Research, Structural Economic Analysis Directorate, Bank of Italy, Via Nazionale 91, 00184Rome, Italy
Giorgi Federico: Directorate General for Economics, Statistics and Research, Structural Economic Analysis Directorate, Bank of Italy, Via Nazionale 91, 00184Rome, Italy

IZA Journal of Labor Economics, 2019, vol. 8, issue 1, 24

Abstract: Aggregate wages display little cyclicality compared to what a standard model would predict. Wage rigidities are an obvious candidate, but the existing literature has emphasized the need to take into account the growing importance of worker composition effects, especially during downturns. This paper seeks to understand the role of firm heterogeneity for aggregate wage dynamics with reference to the Italian case. Using a newly available dataset based on social security records covering the universe of Italian employers between 1990 and 2015, we document that firm composition effects increasingly matter in explaining aggregate wage growth and largely reflect shifts of labor from low-paying to high-paying firms, especially in the most recent years. We find that changes in reallocation of workers across firms accounted for approximately one-fourth of aggregate wage growth during the crisis.

Keywords: aggregate wage dynamics; reallocation; firm composition effects (search for similar items in EconPapers)
JEL-codes: D61 E24 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Working Paper: Reallocation and the Role of Firm Composition Effects on Aggregate Wage Dynamics (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:izajle:v:8:y:2019:i:1:p:5-22:n:3

DOI: 10.2478/izajole-2019-0003

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