Firm Pay Dynamics

53 Pages Posted: 2 Mar 2020 Last revised: 1 Jun 2022

See all articles by Niklas Engbom

Niklas Engbom

New York University (NYU); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Christian Moser

Columbia University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Jan Sauermann

IFAU - Institute for Labour Market Policy Evaluation; SOFI, Stockholm University; IZA; Maastricht University - Research Centre for Education and the Labour Market (ROA)

Date Written: January 29, 2022

Abstract

We study the nature of firm pay dynamics. To this end, we propose a statistical model that extends the seminal framework by Abowd, Kramarz and Margolis (1999) to allow for idiosyncratically time-varying firm pay policies. We estimate the model using linked employer-employee data for Sweden from 1985 to 2016. By drawing on detailed firm financials data, we show that firms that become more productive and accumulate capital raise pay, whereas firms lower pay as they add workers. A secular increase in firm-year pay dispersion in Sweden since 1985 is accounted for by greater persistence of firm pay among incumbent firms as well as greater dispersion in firm pay among entrant firms, as opposed to more volatile firm pay.

Keywords: Earnings Inequality, Worker and Firm Heterogeneity, Firm Dynamics, Linked Employer-Employee Data, Two-Way Fixed Effects Model, AKM

JEL Classification: J31, D22, D31, E24, M13

Suggested Citation

Engbom, Niklas and Moser, Christian and Sauermann, Jan, Firm Pay Dynamics (January 29, 2022). Journal of Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3531250 or http://dx.doi.org/10.2139/ssrn.3531250

Niklas Engbom

New York University (NYU) ( email )

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Christian Moser (Contact Author)

Columbia University ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Jan Sauermann

IFAU - Institute for Labour Market Policy Evaluation ( email )

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SOFI, Stockholm University ( email )

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Germany

Maastricht University - Research Centre for Education and the Labour Market (ROA) ( email )

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