Worker and Firm Heterogeneity in Wage Growth: An AKM approach

Kenneth Sørensen and Rune Vejlin

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper estimates a wage growth equation containing human capital variables known from the traditional Mincerian wage equation with year, worker and firm fixed effects included as well. The paper thus contributes further to the large empirical literature on unobserved heterogeneity following the work of Abowd, Kramarz, and Margolis (1999). Our main contribution is to extend the analysis from wage levels to wage growth. The specification enables us to estimate the individual specific and firm specific fixed effects and their degree of explanation on wage growth. The analysis is conducted using Danish longitudinal matched employer-employee data from 1980 to 2006. We find that the worker fixed effect dominates both the firm fixed effect and the effect of the observed covariates. Worker effects are estimated to explain seven to twelve per cent of the variance in wage growth while firm effects are estimated to explain four to ten per cent. We furthermore find a negative correlation between the worker and firm effects, as do nearly all authors examining wage level equations.

Keywords: MEE data; fixed effects; wage growth (search for similar items in EconPapers)
JEL-codes: J21 J31 (search for similar items in EconPapers)
Pages: 27
Date: 2010-08-27
New Economics Papers: this item is included in nep-bec, nep-hrm, nep-lab, nep-ltv and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Worker and Firm Heterogeneity in Wage Growth: An AKM Approach (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2010-13

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