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It ain't where you're from it's where you're at: firm effects, state dependence, and the gender wage gap

Sabrina Di Addario (), Patrick Kline, Raffaele Saggio () and Mikkel Soelvsten ()
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Raffaele Saggio: University of British Columbia, Canada
Mikkel Soelvsten: University of Wisconsin, Madison

No 1374, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Sequential auction models of labour market competition predict that the wages required to successfully poach a worker from a rival employer will depend on the productivities of both the poached and the poaching firms. We develop a theoretically grounded extension of the two-way fixed effects model of Abowd et al. (1999) in which log hiring wages include a worker fixed effect, a fixed effect for the ‘destination’ firm hiring the worker, and a fixed effect for the ‘origin’ firm, or labour market state, from which the worker was hired. Fitting the model to Italian social security records, origin effects only explain 0.7 per cent of the variance of hiring wages, while destination effects explain about 23 per cent of the variance. Studying a cohort of workers entering the Italian labour market in 2005, we find that differences in origin effects yield essentially no contribution to the evolution of the gender gap in hiring wages, while differences in destination effects explain the majority of the gap at the time of labour market entry. These results suggest that where a worker is hired from tends to be relatively inconsequential for their wages in comparison to where they are currently employed.

Keywords: hiring wages; sequential auctions; firm effects; bargaining; gender wage gap (search for similar items in EconPapers)
JEL-codes: D22 J31 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-eur, nep-gen and nep-lma
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