The Structure of Wages An International Comparison
edited by Edward P. Lazear and Kathryn L. Shaw
University of Chicago Press, 2009
Cloth: 978-0-226-47050-4 | Electronic: 978-0-226-47051-1
ABOUT THIS BOOKAUTHOR BIOGRAPHYTABLE OF CONTENTS

ABOUT THIS BOOK

The distribution of income, the rate of pay raises, and the mobility of employees is crucial to understanding labor economics. Although research abounds on the distribution of wages across individuals in the economy, wage differentials within firms remain a mystery to economists. The first effort to examine linked employer-employee data across countries, The Structure of Wages:An International Comparison analyzes labor trends and their institutional background in the United States and eight European countries.

A distinguished team of contributors reveal how a rising wage variance rewards star employees at a higher rate than ever before, how talent becomes concentrated in a few firms over time, and how outside market conditions affect wages in the twenty-first century. From a comparative perspective that examines wage and income differences within and between countries such as Denmark, Italy, and the Netherlands, this volume will be required reading for economists and those working in industrial organization.

AUTHOR BIOGRAPHY

Edward P. Lazear is the Jack Steele Parker Professor of Human Resources Management and Economics at the Graduate School of Business, Stanford University; the Morris Arnold Cox Senior Fellow at the Hoover Institution; chairman of the Council of Economic Advisers to the President of the United States; and a research associate of the NBER.
 
Kathryn L. Shaw is the Ernest C. Arbuckle Professor of Economics in the Graduate School of Business, Stanford University, and a research associate of the NBER.
 
 
 

TABLE OF CONTENTS

Acknowledgments

- Edward P. Lazear, Kathryn L. Shaw
DOI: 10.7208/chicago/9780226470511.003.0001
[firm wage structure, promotion, hiring, mobility patterns, labor market institutions, Denmark, Finland, Germany, Netherlands, United States]
This chapter uses data from Denmark, Finland, Norway, Sweden, Belgium, France, Germany, Italy, the Netherlands, and the United States to review the general patterns about firm wage structure, promotion, hiring, and mobility patterns. It then explores the structure of wage levels and the alternative models of interpreting these structures, before turning to wage growth rates and mobility. The main finding is that countries are remarkably similar in their structures of wage levels and of wage changes. Despite very different labor institutions across countries, the evidence favoring high within-firm wage dispersion appears across countries. Mobility levels differ across countries, but even here, mobility patterns seem relatively consistent. Despite different labor market institutions, countries do not differ dramatically in their wage patterns. Firms that allow high wage spread also have higher wages. Thus, most firms have many different jobs within the firm; wage variance is high within firms. (pages 1 - 58)
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- Lars Vilhuber
DOI: 10.7208/chicago/9780226470511.003.0002
[data collection, firm, France, Belgium, Italy, United States, tax rate, lay off]
This chapter discusses two data elements that remain fundamentally different across countries—the sampling or data collection methodology and the basic unit of analysis (establishment or firm)—and the extent to which they differ. It also reviews some of the problems that impact longitudinally linked administrative data in general. Then, the chapter considers some of the solutions analysts and statistical agencies have implemented, and some that they did not. The Nordic data, in general, report statistics calculated at both the firm and the plant level, whereas France, Belgium, Italy, the Swedish Employers' Federation, and the United States calculate statistics at the firm level. The tax rate increases as firms lay off large numbers of workers. In the Finnish data, the administrative codes seem to track the economic entity quite accurately. (pages 59 - 80)
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- John M. Abowd, John Haltiwanger, Julia Lane
DOI: 10.7208/chicago/9780226470511.003.0003
[earnings distribution, mobility patterns, database infrastructure, wages, firms, job mobility, earnings inequality, United States]
This chapter investigates the sources of variation in two core outcomes of interest to economists in the United States—the earnings distribution and mobility patterns—and presents a brief literature review and institutional background. It also briefly discusses the new database infrastructure, and then reports some basic statistics about the structure of wages within and between firms, as well as job mobility patterns. The underlying dynamics of earnings inequality are complex and are due to factors that cannot be measured in standard cross-sectional data. While there is substantial between-firm variation in earnings, the within-firm variation is very large in terms of both levels and changes of earnings over time. The earnings dynamics and turnover are, not surprisingly, connected with workers that change jobs having on average a positive increase in earnings. (pages 81 - 100)
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- Tor Eriksson, Niels Westergaard-Nielsen
DOI: 10.7208/chicago/9780226470511.003.0004
[worker mobility, Danish labor market, Denmark, wage structure, firms, job mobility, wage mobility, labor turnover, employment]
This chapter, which describes some key features of the labor market in Denmark, also addresses the important aspect of its functioning and flexibility: the high level of worker mobility. Then, it explores the wage structure between and within firms, and changes therein since 1980. The Danish labor market, which is characterized by both high job mobility and high wage mobility, has an institutional setup that strongly facilitates mobility. The observed increase in overall wage dispersion is predominantly due to increasing wage differentials between firms. Moreover, Denmark has experienced a shift in wage bargaining from a highly centralized system to a considerably more decentralized wage setting. There has been a clear increase in between-firm wage inequality. Although labor turnover rates are high, a considerable portion of workers are in long-term employment relationships. (pages 101 - 124)
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- Lex Borghans, Ben Kriechel
DOI: 10.7208/chicago/9780226470511.003.0005
[Dutch wage structure, Netherlands, bargaining system, firm, market, wage inequality, human capital]
This chapter explains the institutional setting and the main actors of wage determination in the Netherlands. It also examines the impact of the centralized bargaining system on the Dutch wage structure, and the extent to which individual factors, developments at the firm level, and market developments determine wages. From 1999 to 2003, the Netherlands clearly experienced an increase in wage inequality, especially among men. The data suggest that wage formation in the Netherlands was determined mainly by the development of the scarcity of human capital on the one hand, and by individual career developments on the other. There was a general tendency for an increase in wage inequality as wages for workers with high incomes grew more than wages for low-wage workers. The structure of wages in the Netherlands is largely related to changes in the scarcity and value of human capital. (pages 125 - 148)
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- Roope Uusitalo, Juhana Vartiainen
DOI: 10.7208/chicago/9780226470511.003.0006
[wage structure, Finnish manufacturing industries, econometric analysis, wage bargaining system, Finland, occupation, earnings growth]
This chapter reports an econometric analysis of the wage structure in Finnish manufacturing industries. It attempts to illustrate how the last ten years have meant a gradual increase in the importance of firm-specific factors in pay determination. The Finnish wage bargaining system aims to control the average rate of wage growth while leaving relative wages to decentralized, plant-level, or individual decision making. The average wage of the lowest decile is about 57 to 59 percent of the mean wage in Finland, a couple of percentage points lower than in Sweden. The Finnish wage-setting institutions lead to fairly uniform wage increases. Those who change occupation or employer are exposed to higher variation of earnings growth. Wage setting is becoming a bit more firm specific, while centralized agreements on pay increases continue to be the main force that impacts the growth in average pay. (pages 149 - 178)
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- Thierry Lallemand, Robert Plasman, François Rycx
DOI: 10.7208/chicago/9780226470511.003.0007
[wage structure, Belgian firms, wage dispersion, bargaining regime, Belgian private sector, Belgium, wage inequality, blue-collar workers, white-collar workers]
This chapter, which explores the structure of wages within and between Belgian firms, also investigates how the productivity of these firms is affected by their internal wage dispersion. The bargaining regime in companies in the Belgian private sector does not derive directly from Canadian union membership. The data show that high-paying firms are characterized by a more dispersed wage structure. The bargaining regime has a crucial effect on the structure of wages even in a corporatist country such as Belgium. Following a 10 percent rise in wage inequality, productivity increases by approximately 2.1 percentage points more within firms that are essentially composed of blue-collar workers. The chapter also reveals that there is a lower pay spread within firms that are mainly composed of white-collar workers. (pages 179 - 216)
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- Oskar Nordström Skans, Per-Anders Edin, Bertil Holmlund
DOI: 10.7208/chicago/9780226470511.003.0008
[labor mobility, wage structure, wage dispersion, labor market institutions, plant level, Swedish corporate sector]
This chapter outlines the Swedish labor market institutions, the turbulent macroeconomic events of the 1990s, and the evolution of labor mobility and fixed-term contracts as a background to the later analysis of wages and mobility. It also reports detailed descriptive evidence of wages, wage changes, and mobility at the plant level in the Swedish private corporate sector for the years 1986, 1990, 1995, and 2000. The evolution of the wage structure is then covered. The data show that although the rate of real wage changes increasingly varies between plants, the variation of wage changes has remained stable within plants. The wage dispersion has increased quite consistently for the corporate sector and for the private corporate sector, where the dispersion has been relatively stable. Wages and productivity at the plant level are strongly positively correlated, both in levels and changes. (pages 217 - 260)
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- Holger Alda, Lutz Bellmann, Hermann Gartner
DOI: 10.7208/chicago/9780226470511.003.0009
[wage, German labor market, German firms, mobility patterns, worker mobility, Employment Research, employment]
This chapter discusses the macroeconomic environment for German firms in the 1990s, referring more deeply to labor market institutions that are affecting the wage and mobility patterns. It utilizes the German linked employer–employee data of the Institute for Employment Research to administrative individual data from the employment statistics register. Firms set wages not only by occupations but also for other observed and unobserved person and firm characteristics. Wage growth rates are joined with the date of entrance by the employer. In addition, firms employ a large mixture of skills. Worker mobility increased in the second half of the 1990s, which suggests that it was driven by the business cycle and also by the trend of deregulation in the German labor market. Moreover, while the entry rates in most cases grew moderately, the exit rates become higher during the 1990s. (pages 261 - 314)
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- Arngrim Hunnes, Jarle Møen, Kjell G. Salvanes
DOI: 10.7208/chicago/9780226470511.003.0010
[wage structure, labor mobility, employment, Norway, Norwegian firms, wage dispersion, blue-collar workers, white-collar workers]
This chapter, which discusses the wage setting and employment protection institutions in Norway, also reports the Norwegian data sets. A large number of stylized facts regarding wage structure and labor mobility within and between Norwegian firms are then dealt with. The chapter covers the period from 1980 to 1997. The firms in the blue-collar data set are a subsample of the firms in the white-collar data set. White-collar wages are more strongly affected by firm heterogeneity, and are also under a more flexible regime in terms of wage setting. For high-level jobs, there is significant positive correlation between wage dispersion and entry. Wage dispersion among blue-collar workers is much smaller than among white-collar workers. Entry and exit rates are much higher for workers in low-level jobs than for workers in high-level jobs. (pages 315 - 372)
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- Bruno Contini, Roberto Leombruni, Lia Pacelli, Claudia Villosio
DOI: 10.7208/chicago/9780226470511.003.0011
[Italian firms, wage policy, Italy, wage growth, worker entry, worker exit]
This chapter, which describes the structure of wages within and between Italian firms in the 1990s, shows that firms do not follow a pay compression model in their wage policy. Firm wage policy matters in shaping the wage level distribution and also the wage change distribution. Low-wage firms almost always exhibit the highest positive net flows, which is consistent with what is observed in other countries. The link between firm size and within-firm individual seniority is positive, and exit rates decline as wages increase. In Italy, almost all large firms directly bargain over wages with unions, holding the nationwide industry contract as a benchmark. Negative wage growth is more common among movers and short-tenure workers. In addition, worker entry and exit rates are higher at low-pay firms and lower at high-pay firms. (pages 373 - 400)
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- Francis Kramarz, Sébastien Perez-Duarte
DOI: 10.7208/chicago/9780226470511.003.0012
[wage structure, France, wage movements, wage dispersion, labor cost, firm, unemployment]
This chapter, which deals with wage structure in France during the twenty years between 1976 and 1996 through the sieve of intra- and interfirm heterogeneity, evaluates the wage movements, as well as the wage dispersion and variation, through some sample statistics. Only when the unemployment rate decreased by a bit more than 1 percent between 1987 and 1989 did real wages fall. Reduction in labor cost leads to lower turnover for low-wage workers. Wage change for movers is much more dispersed, both in the upper part of the distribution and in the bottom part too. Correlation between the average wage in the firm and exit and entry rates is consistently negative throughout the years. A positive number of firms exhibit exit rates of one (the firm is destroyed). On average, 3 percent of the firms close every year. (pages 401 - 418)
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- Paul Oyer
DOI: 10.7208/chicago/9780226470511.003.0013
[Swedish labor market, wage changes, worker mobility, firms, wage distribution, job turnover, blue-collar workers, white-collar workers, Sweden]
This chapter presents a few more details on the Swedish labor market, and then conducts formal descriptive analyses to document these changes throughout the 1970s and 1980s. The matched employee–employer data is used. The analysis of wage levels and wage changes, as well as the trends in worker mobility are elaborated. The chapter shows that the decrease in wage variation during the 1970s and the increase in the 1980s were due to increased variation of wages within firms and increased variation across firms. In addition, people in the low part of the wage distribution have the least to lose by changing jobs, and this relationship gets stronger all the way to the bottom of the wage distribution within firms. The job turnover and wage compression trends are strong for both blue- and white-collar workers in Sweden. (pages 419 - 448)
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Contributors

Author Index

Subject Index