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We use matched employer-employee data from Sweden to study the role of the firm in affecting the stochastic properties of wages. Our model accounts for endogenous participation and mobility decisions. We find that firm-specific permanent productivity shocks transmit to individual wages, but the effect is mostly concentrated among the high-skilled workers. For low-skilled the pass-through is similar for temporary and permanent firm-level shocks and the magnitude smaller. The updates to worker-firm specific match effects over the life of a firm-worker relationship are small. Substantial growth in earnings variance over the life cycle for high-skilled workers is driven by firms. In particular, cross-sectional wage variances by age 55 are roughly one-third higher relative to a scenario with no pass-through of firm shocks onto wages.
Authors

Research Fellow Yale University
Costas is a Research Fellow of the IFS and a Professor of Economics at Yale University and a Visiting Professor at University College London.

Stanford University

Lisa Laun

Benjamin Friedrich
Working Paper details
- DOI
- 10.1920/wp.ifs.2021.3321
- Publisher
- Institute for Fiscal Studies
Suggested citation
Friedrich, B et al. (2021). Earnings dynamics and firm-level shocks. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/earnings-dynamics-and-firm-level-shocks (accessed: 10 February 2025).
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