Firms And Wages
Saturday, Jan. 7, 2017 7:30 PM – 9:30 PM
- Chair: Jesse Rothstein, University of California-Berkeley
Compensation Practices, Worker Mobility, and Wage Dispersion: Evidence from Brazilian Employer-Employee Matched Data
AbstractIt is increasingly accepted that firms play an important role in rising wage inequality, but the nature of that role is not well-understood. Recent evidence from the US and Germany points to growing disparities in pay between firms as the source of the problem, rather than within-firm pay variance, which has changed relatively little. One possible explanation is that heterogeneous application of modern management practices has led to increasing firm-specific productivity differences, which, in turn, may have induced a greater degree worker sorting. In this paper, we explore this possibility using matched employer-employee data from Brazil's from RelaÃ§Ã£o Anual de InformaÃ§Ãµes Sociais (RAIS) linked to its manufacturing firms covered in the World Management Survey (WMS). Using the RAIS data, we characterize different personnel management profiles that firms use to affect recruiting, motivation, and retention of high-quality workers. With the WMS data, we examine how different personnel management profiles are associated with management quality. In a labor market characterized by search frictions, asymmetric information about worker productivity, and shirking, firms should alter the level and sequencing of pay, as well as their portfolio of short and long-term contracts. In Brazil, institutions strongly favor incumbent workers, compounding these management issues. Nevertheless, firms are able to set the level and sequencing of pay, contract types, and termination policies to improve performance. These management practices will alter the sorting of workers with different levels of ability into and out of the firm, along with the observed wage-tenure profile. Therefore, whether workers end up employed high-paying firms is both a matter of luck, from their perspective, but also related to managerial quality and firm performance. We show that the heterogeneity in pay across firms has two key components that have been conflated in prior work: a level component and a tenure
Cyclical Reallocation of Workers Across Employers by Firm Size and Firm Wage
AbstractDo the job-to-job moves of workers contribute to the cyclicality of employment growth at different types of firms? In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in job reallocation in the U.S. economy. To guide our analysis, we look to the theoretical literature on on-the-job search, which predicts that job-to-job flows should reallocate workers from small to large firms. While this prediction is not supported by the data, we do find that job-to-job moves generally reallocate workers from lower paying to higher paying firms, and this reallocation of workers is highly procyclical. During the Great Recession, this firm wage job ladder collapsed, with net worker reallocation to higher wage firms falling to zero. We also find that differential responses of net hires from non-employment play an important role in the patterns of the cyclicality of employment dynamics across firms classified by size and wage. For example, we find that small and low wage firms experience greater reductions in net hires from non-employment during periods of economic contractions.
Ranking Firms Using Revealed Preference
AbstractThis paper estimates workers’ preferences for firms by studying the structure of employer-to- employer transitions in U.S. administrative data. The paper uses a tool from numerical linear algebra to measure the central tendency of worker flows, which is closely related to the ranking of firms revealed by workers’ choices. There is evidence for compensating differential when workers systematically move to lower-paying firms in a way that cannot be accounted for by layoffs or differences in recruiting intensity. Compensating differentials account for about 15% of the variance of earnings.
- J3 - Wages, Compensation, and Labor Costs