The Importance of Firms in Wage Determination

33 Pages Posted: 29 Oct 2004

See all articles by Max Gruetter

Max Gruetter

University of Zurich - Department of Economics; IZA Institute of Labor Economics

Rafael Lalive

University of Lausanne - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: October 2004

Abstract

Firms are central to many theories of the labor market. However, the extent to which firms affect wages has only recently been explored using matched employer-employee data. This paper investigates (i) the importance of firms in explaining wage differences across individuals and industries, and (ii) how the nature of interfirm mobility - job-to-job vs. job-unemployment-job - affects the relative importance of firms and workers in wage determination. Results indicate that (i) firms are much more important in explaining the variance of average wages across industries rather than individuals, and (ii) using job-to-job transitions reduces the importance of firm wage policies in explaining differences.

Keywords: interfirm mobility, wage determination, industry wage differentials, matched employer employee data

JEL Classification: C23, J31

Suggested Citation

Gruetter, Max and Lalive, Rafael, The Importance of Firms in Wage Determination (October 2004). Available at SSRN: https://ssrn.com/abstract=612222 or http://dx.doi.org/10.2139/ssrn.612222

Max Gruetter (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Rafael Lalive

University of Lausanne - Department of Economics ( email )

Batiment Internef
Lausanne, 1015
Switzerland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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