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Firms And Wages

Paper Session

Saturday, Jan. 7, 2017 7:30 PM – 9:30 PM

Hyatt Regency Chicago, Gold Coast
Hosted By: Labor and Employment Relations Association
  • Chair: Jesse Rothstein, University of California-Berkeley

Firm Heterogeneity in Skill Demands

David Deming
,
Harvard University
Lisa Kahn
,
Yale University

Abstract

Why do some firms pay higher wages for the same workers? Can firm-specific wage premia be explained by differences in skill demands and the allocation of workers to different types of tasks? In this paper, we study variation in skill demands across firms and labor markets using data from Burning Glass Technologies, a firm that collects detailed information from the universe of all online job vacancy postings in the U.S. We first demonstrate that there is substantial heterogeneity in skill demands within occupation and industry but across firms and labor markets. Following Deming (2015) we focus on the labor market returns to social skills and to complementarity between cognitive skills and social skills. In preliminary results, we find that 1) Occupation wage premia are higher in MSAs where a higher share of job ads ask for cognitive skills, social skills and both together; 2) Variation in firms across MSAs explains about one-third of this gap conditional on occupation fixed effects and MSA characteristics; 3) Publicly traded firms and firms with higher revenue per worker are more likely to require cognitive skills, social skills and both together. In sum, our findings indicate that high-paying firms have higher cognitive skill and social skill requirements for the same (narrowly defined) occupations.

Compensation Practices, Worker Mobility, and Wage Dispersion: Evidence from Brazilian Employer-Employee Matched Data

Ian M. Schmutte
,
University of Georgia
Chris Cornwell
,
University of Georgia
Daniela Scur
,
University of Oxford

Abstract

It 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 Relação Anual de Informações 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

John C. Haltiwanger
,
University of Maryland
Henry R. Hyatt
,
U.S. Census Bureau
Erika McEntarfer
,
U.S. Census Bureau

Abstract

Do 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

Isaac Sorkin
,
Stanford University

Abstract

This 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.
Discussant(s)
Chris Stanton
,
University of Utah
Lisa Kahn
,
Yale University
JEL Classifications
  • J3 - Wages, Compensation, and Labor Costs