Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202841 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 67
Publisher: 
Università Cattolica del Sacro Cuore, Dipartimento di Economia e Finanza (DISCE), Milano
Abstract: 
Studies of individual wage dynamics typically ignore firm heterogeneity, whereas decompositions of earnings into worker and firm effects abstract from life-cycle considerations. We study firm effects in individual wage dynamics using administrative data on the population of Italian employers and employees. We propose a novel identification strategy for firm-related wage components exploiting the informative content of the wage covariance structure of coworkers. Wage inequality increases three-fold over the working life; firm effects are predominant while young, but sorting of workers into firms becomes increasingly important, explaining the largest share of lifetime inequality. Static models that do not allow for life-cycle dynamics underestimate the importance of sorting and overstate match and firm effects.
Subjects: 
Wage inequality
Wage dynamics
Co-workers' covariance
JEL: 
J24
J31
Document Type: 
Working Paper

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