Unobserved Individual and Firm Heterogeneity in Wage and Job-Duration Functions: Evidence from German Linked Employer-Employee Data

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JournalGerman Economic Review
DatePublished - 1 Nov 2011
Issue number4
Volume12
Number of pages21
Pages (from-to)469-489
Original languageEnglish

Abstract

We analyse the correlations between individual and firm fixed effects, and wage and job-duration functions. Our results for large firms suggest that low-wage firms tend to be stable firms, suggesting that lower wages can buy job stability. Furthermore, high-wage workers sort into the stable low-wage firms. Our interpretation is that high-wage workers have a higher wage to insure against job loss and can afford more easily to forgo wages in favour of job stability. This may provide an explanation of the puzzle identified in previous literature that high-wage workers are matched to low-wage firms.

    Research areas

  • C23, J31, J62, J63, Job stability, Linked employer-employee data, Unobserved worker and firm heterogeneity, Wages

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