Life-Cycle Wage Growth and Firm Productivity in Developed and Developing Economics

Kerstin Holzheu () and Juan Munoz-Morales
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Kerstin Holzheu: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics
Juan Munoz-Morales: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique, Université de Lille

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Abstract: Life-cycle wage growth rates vary significantly across countries. In this paper, we examine the role of the local distribution of firm productivity in shaping life-cycle wage profiles by introducing a random search model that disentangles the effects of firm productivity distribution, on-the-job learning, and labor market frictions on life-cycle wage growth. Using data from Brazil, Colombia, and the United States, we document strong correlations between the firm productivity distribution-proxied by the share of large firms in the economy-and the steepness of life-cycle wage trajectories. Estimates of the model for the three countries suggest that the shape and scale of the firm-type distribution are key factors in explaining the steepness of life-cycle wage growth. Additionally, counterfactual simulations suggest that equating the firm-type distribution in Brazil and Colombia to that of the United States would fully close the cross-country gap in the steepness of workers' life-cycle wage trajectories.

Keywords: Labour markets; Income profiles; Developing countries (search for similar items in EconPapers)
Date: 2025-04-10
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05030546v1
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