1

Job Mobility and Wage Dynamics

Valerie SmeetsVery preliminary – comments welcome

Prepared for the Internal Seminar UC3M

2

Motivation Job transitions (patterns) and wages Common framework is search and

matching models Able workers should match with better jobs

(Becker, 1973) Workers change jobs to improve their match Switching decision may be influenced by firm

specific HC and switching costs Firm specific HC destroyed for switchers Workers with more firm specific human capital

and better matches are less likely to leave

3

Motivation (cont´d) Number of past jobs

Ambiguous predictions about cross sectional correlation between the number of jobs a worker has held and his match quality

1. Workers who remain at their job for a long time have high matches while those who switch firms have low matches # past jobs negatively related to wages

2. Workers take better matches at other firms as a substitute for acquiring specific capital # past jobs positively related to wages

4

Literature

Job seniority and wages Large returns to firm tenure (2 to 3% per year) Unobserved heterogeneity lead to biased

returns estimates (Abraham and Farber (1987), Altonji and Shakotko (1987), Topel (1991), Abowd, Kramarz and Margolis (1999))

The large firm tenure coefficients go away when industry, occupational or career tenure are included (Neal (1995), Kambourov and Manovskii (2002) and Pavan (2005))

5

Job mobility and wages Mincer (1986)

Short and long run wage gains from separations PSID, 1970-1981 (all ages) Positive wage gains in the short run Movers never catch up higher wage of stayers

(flatter life time trajectories) Abowd, Kramartz and Roux (2006), Buchinsky,

Fougere, Kramarz and Tchernis (2003) Wage and mobility (firm policies, firm

performance) French matched employer-employee data Includes # firm changes (more) to control for

bias in worker heterogeneity wrt previous employment

6

Job changes patterns and wages Mincer-Jovanovic (1981)

National Longitudinal Survey 1966-1976 No effect of past firm changes for young

workers Negative effect for old workers

Light and McGarry (1998) NLSY (1979-1993), young white men only

(8 first years of career) Positive or no effect of # firm changes in

first 2 years, negative effect of total # changes overall

Extremely small effects

7

Outline

1. Estimation strategy

2. Data description, sum stats and results

with Danish matched employer-employee

data

3. Verification using US data (NSLY) – brief

data description, sum stats and results

with US data

4. Conclusions

8

Estimation model

Correlation of variables with unobserved job or worker characteristics will produce biased OLS estimators of β

itdiidtdtsitc

iteititidtftidt

firmsizesfirmchange

eriencenureindustrytefirmtenurewage

explog 0

noise idi

sticscharacteri fixed firm

sticscharacteri fixed worker

t time in d firm a and i workera btw macth

it

d

i

idt

9

Two empirical possibilities (I)

Consistent with costly search model of Jovanovic (1979)

No HC gain to accumulate experience in multiple firms Workers who remain at their job for a long time have

high matches while those who switch firms have low matches

Costly SHC only for workers planning to stay

Firm tenure biased upward and firm changes biased downward (βft > 0 and βc < 0)

0≤ ),cov(0),cov( idtitidtidt sfirmchange and firmtenure

10

Two empirical possibilities (II)

Some workers take better matches at other firms as a substitute for acquiring specific human capital

These workers may switch because of low search or switching costs, scare skills or plain luck at securing offers

Firm tenure biased downward and firm changes biased upward (βft < 0 and βc > 0)

0 ),cov(0),cov( idtitidtidt sfirmchange and firmtenure

11

Data - Denmark

Danish Integrated Database for Labor Market Research (IDA) – Statistics DK Matched employer-employee dataset of entire

Danish population (1980-2001) Combination of 3 datasets

Common keys to match them back Individual – personnel characteristics (age,

sex, education, family status, location, occupation, etc.)

Job – plant, industry, location, # jobs, wage, etc., November data

Firms – nbr plants, old ID number, etc.

12

Data - Denmark Sample

Private sector, primary job only Workers aged 25 to 44

25 - Avoid students 45 - Data limitations in computation of labor

history variables 2001 cross section and 1996-2001 panel 731,358 individuals or 4,314,813 data year

Controls Education (4 groups), part time, female, firm

size, industry dummies, firm and worker fixed effect

13

Data - Denmark Human capital variables

Experience – computed back to 1969 by Stat DK Firm tenure – using 1980-2001 history Industry tenure - using 1980-2001 history

Firm changes variables # past firm changes after last graduation Decompose firm changes into exits and non

exits Intervals for firm changes [1-2, 3-5, 6-9, 10 up]

to check for non linearity Disaggregate exits and non exits by two age

intervals: 25-34 and 35-44

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Demographic Variables Full time workers Part time workers

Age 34.5 34.1

Female 0.25 0.44

Vocational 0.56 0.58

Community college 0.13 0.17

College & masters 0.04 0.06

Labor Market History Variables Full time workers Part time workers

Experience 13.0 11.7

Firm tenure 4.6 3.2

Industry tenure 6.0 5.0

# firm changes after graduation 3.00 3.02

# exits after graduation 0.77 0.81

# exits - age 25/ 34 0.41 0.45

# exits - age 35/ 44 0.09 0.12

# non exits after graduation 2.23 2.21

# non exits - age 25/ 34 1.12 1.17

# non exits - age 35/ 44 0.28 0.35

# observations 319,003 412,355

Workers (25 to 44 years old in 2001)DANISH DATA - Demographic Variables

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Variables Agriculture Manufacture Construction Retail Finance

Full time 0.55 0.56 0.47 0.35 0.31

Female 0.27 0.33 0.21 0.42 0.45

Firm tenure 3.3 4.4 3.4 3.6 3.3

Industry tenure 5.0 5.4 5.5 5.5 5.2

# firm changes 3.0 2.9 3.5 2.9 2.6

# observations 16,413 230,775 159,144 187,951 149,496

Full time 0.57 0.56 0.45 0.36 0.32

Female 0.26 0.34 0.23 0.41 0.46

Firm tenure 3.8 4.4 3.5 3.8 3.4

Industry tenure 5.6 5.4 5.6 5.9 5.5

# firm changes 3.6 3.2 3.9 3.3 2.8

# observations 833 14,525 9,257 10,400 9,388

DANISH DATA - Summary Statistics by IndustryWorkers (25 to 44 years old in 2001)

Workers 35 years old only

16

Histogram of firm changes (after last graduation)

17

Histogram of exits and non exits

18

Estimations Wage (log) on HC variables, firm changes +

controls 2001 sample, men full time, firm worker fixed

effects (1996-2001 sample) Wage (log) on HC variables, exits and non exits

+ controls 2001 sample, men full time, college, college

men, manufacture, non manufacture Wage growth (log) on HC variables, firm

changes and controls 1996-2001 sample, men full time, college,

2001 and 1996 firm fixed effects

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Firm Panel

fixed effect 1996-2001

0.022*** -0.00001 0.005*** 0.0001 0.017*** -0.003**

(0.001) (0.002) (0.002) (0.003) (0.002) (0.0004)

0.040*** -0.006*** 0.006*** 0.001 0.035*** 0.013***

(0.001) (0.002) (0.002) (0.003) (0.002) (0.001)

0.040*** -0.016*** 0.002 -0.005 0.039*** 0.029***

(0.001) (0.002) (0.002) (0.003) (0.002) (0.001)

0.020*** -0.039*** -0.007*** -0.009*** 0.032*** 0.049***

(0.002) (0.002) (0.002) (0.003) (0.002) (0.001)

0.033*** 0.032*** -0.009*** 0.024*** 0.002***

(0.002) (0.002) (0.003) (0.002) (0.001)

0.069*** 0.068*** 0.021*** 0.058*** 0.014***

(0.002) (0.002) (0.003) (0.002) (0.001)

0.086*** 0.087*** 0.046*** 0.081*** 0.014***

(0.002) (0.002) (0.003) (0.002) (0.001)

0.094*** 0.97*** 0.060*** 0.097*** 0.012***

(0.002) (0.002) (0.003) (0.002) (0.001)

0.018*** 0.015*** 0.001 0.172***

(0.002) (0.002) (0.002) (0.001)

0.042*** 0.039*** 0.018*** 0.220***

(0.002) (0.002) (0.002) (0.001)

0.061*** 0.058*** 0.029*** 0.236***

(0.002) (0.003) (0.002) (0.002)

0.068*** 0.068*** 0.030*** 0.227***

(0.002) (0.003) (0.002) (0.002)

730,492 730,492 730,492 240,005 730,492 4,314,813

0.27 0.27 0.27 0.28 0.49 0.78

DANISH DATA - Wages and Past Firm Changes

Dept. Variable:

Log of Hourly Wage (1) (2) (3) Men - Full time

FIR

M T

ENU

RE

1 to 2

3 to 5

6 to 9

10 and up

-

IND

UST

RY

TEN

UR

E

1 to 2 -

3 to 5 -

6 to 9 -

10 and up -

-

FIR

M C

HA

NG

ES

1 to 2 - -

3 to 5 - -

6 to 9 -

# observations

R²

10 and up -

20

All Full time College+ Non

sample men Men Manufacture

-0.006*** -0.013*** 0.019*** 0.011*** -0.013*** -0.003***

(0.001) (0.001) (0.002) (0.003) (0.001) (0.001)

-0.023*** -0.020*** 0.006 0.022*** -0.032*** -0.019***

(0.001) (0.002) (0.004) (0.005) (0.002) (0.002)

0.017*** 0.014*** 0.036*** 0.040*** 0.011*** 0.019***

(0.0003) (0.001) (0.001) (0.001) (0.001) (0.0004)

0.019*** 0.017*** 0.040*** 0.041*** 0.016*** 0.019***

(0.001) (0.001) (0.002) (0.002) (0.001) (0.001)

730,492 240,005 109,481 72,874 226,671 503,821

0.28 0.28 0.28 0.24 0.29 0.27

DANISH DATA - Wages and Past Firm Changes by Exits vs. Non Exits

Dept. Variable: Log of Hourly Wage

College+ Manufacture

FIR

M C

HA

NG

ES

# exits btw 25/ 35

# exits btw 35/ 45

# non exits btw 25/ 35

# non exits btw 35/ 45

R²

Controls firm and industry tenure, experience, female, education (3 groups), log of firm size

Fixed effect industry 2 digits

# observations

21

All Full time 2001 1996 1996

sample men fixed effect fixed effect fixed effect

0.022*** 0.033*** 0.026*** 0.020*** 0.023*** 0.008***

(0.001) (0.001) (0.003) (0.001) (0.001) (0.001)

Fixed effect 2001 firm 1996 firm 1996 firm

# observations 545,716 196,522 49,687 545,716 545,716 545,716

R² 0.10 0.15 0.10 0.31 0.31 0.31

industry 2 digits

experience, experience² , female, education (3 groups), log of firm size

# firm changes over

1996 - 2001

Controls2001 values for firm and industry tenure

1996 firm &

industry tenure

DANISH DATA - Changes in Wages and Past Firm ChangesPeriod 1996-2001

Dept. Variable:

Log of wage growth College+

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Data - US National Longitudinal Survey of Youth

(NLSY79) Data prepared by Pavan (2005) Computed workers labor history, including firm

tenure, industry tenure and career tenure using NLSY work history files (1978-1994)

Sample 1979-1993 Full time male workers, primary job Men only, age 25 and older [25,37] 1935 individuals or 12,776 data year Older sample than Light and McGarry (1998)

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Data - US Firm changes variables

# past firm changes after age 25 # exits and non exits after age 25 Intervals for firm changes and non exits

Controls Experience, firm tenure, industry tenure,

career tenure, black, education Estimations – log wage

Panel, without and with individual fixed effect # past firm changes, exits and non exits

(intervals)

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Summary statistics – US (NLSY)

Experience 9.2

Firm tenure 4.1

Industry tenure 4.9

Career tenure 5.9

# firm changes 2.50

# firm changes after 25 1.18

# non exits 2.40

# non exits after 25 1.12

# exits 0.11

# exits after 25 0.06

# observations 12,776

Labor Market History Variables

25

Histogram of firm changes (after 25)

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0.073*** 0.076*** 0.061*** 0.121*** 0.117*** 0.130***

(0.014) (0.014) (0.014) (0.018) (0.019) (0.018)

0.034** 0.049*** 0.056*** 0.157*** 0.160*** 0.189***

(0.017) (0.017) (0.016) (0.025) (0.025) (0.025)

-0.040* -0.040* 0.027 0.171*** 0.173*** 0.229***

(0.024) (0.024) (0.024) (0.035) (0.040) (0.036)

0.065*** 0.058*** 0.014** 0.050*** 0.047*** 0.035***

(0.005) (0.005) (0.006) (0.004) (0.005) (0.005)

-0.003*** -0.003*** -0.0006 -0.002*** -0.002*** -0.002***

(0.0003) (0.0004) (0.0004) (0.0003) (0.0003) (0.0003)

0.021*** 0.006

(0.005) (0.004)

-0.0007* 0.0000

(0.0003) (0.0003)

0.083*** 0.032***

(0.005) (0.005)

-0.003*** -0.001***

(0.0004) (0.0003)

Controls

12,776 12,285 12,776 12,776 12,285 12,776

0.22 0.23 0.25 0.70 0.70 0.70

-

- -

- -

-

-

-Industry tenure²

Career tenure

Career tenure²

FIR

M C

HA

NG

ES

-

-

black, education (4 groups), year dummies

-

-

Fixed effect

# observations

no

-

-

R²

worker

4 changes and up

1 change

2 to 3 changes

Firm tenure

Firm tenure²

Industry tenure

-

-

US DATA (NLSY) - Wages and Past Firm Changes

Dept. Variable:

Log of Hourly Wage (1a) (2a) (3b) (1b) (2b) (3b)

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US Data (NLSY) - Wages and Exits vs. Non Exits

-0.061*** -0.031 -0.020 0.041 0.178** 0.065

(0.019) (0.022) (0.018) (0.046) (0.070) (0.046)

0.074*** 0.075*** 0.059*** 0.108*** 0.112*** 0.119***

(0.014) (0.014) (0.013) (0.018) (0.018) (0.018)

0.037** 0.041** 0.051*** 0.148*** 0.157*** 0.180***

(0.016) (0.017) (0.016) (0.024) (0.025) (0.024)

-0.030 -0.031 0.036 0.166*** 0.172*** 0.229***

(0.024) (0.024) (0.024) (0.034) (0.035) (0.035)

12,776 12,285 12,776 12,776 12,285 12,776

0.22 0.23 0.25 0.70 0.70 0.70

Dept. Variable:

Log of Hourly Wage (1a) (2a) (3b) (1b) (2b) (3b)

Fixed effect no worker

FIR

M C

HA

NG

ES

1 exit or more

1 non exit

2 to 3 non exits

4 non exits and up

# observations

R²

Controls

black, education (4 groups), experience, year dummies

firm tenure

firm and

industry

tenure

firm and

occupation

tenure

firm tenure

firm and

industry

tenure

firm and

occupation

tenure

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Conclusions

Denmark Cross section & panel - the effect of past firm

changes increases with the number of changes 2 to 7% in cross section 17 to 23% in panel

US Cross section - Only moving up to 3 times affect

your wage (7-6%,3-6%) Panel - the effect of past firm changes increases

with the number of changes (13 to 23%)

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Conclusions New empirical fact - workers who switch

firms repeatedly in the past earn higher wages

Workers who move end up with better match than workers who do not move

Contredict Mincer- Jovanovic (1981) and Light McGarry (1999) Different groups of workers have different

effect of job transitions patterns on wages

Returns to firm changes dominate returns to SHC effect

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Conclusions Correlation btw firm changes and wage

become very large once workers fixed effects are introduced Some negative selection in the time invariant

ability of workers who switch firms Robust to all specifications

Number of job changes, exits or non exits, age groups, fixed effect

Similar results for Denmark and the US Policy implications for labor market flexibility

31

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Firm Panel

fixed effect 1996-2001

0.018*** 0.015*** 0.001 0.172***

(0.002) (0.002) (0.002) (0.001)

0.042*** 0.039*** 0.018*** 0.220***

(0.002) (0.002) (0.002) (0.001)

0.061*** 0.058*** 0.029*** 0.236***

(0.002) (0.003) (0.002) (0.002)

0.068*** 0.068*** 0.030*** 0.227***

(0.002) (0.003) (0.002) (0.002)

firm worker

730,492 240,005 730,492 4,314,8130.27 0.28 0.49 0.78

# observationsR²

10 changes and up

Controls

FIR

M C

HA

NG

ES

1 to 2 changes

3 to 5 changes

6 to 9 changes

experience, firm and industry tenure, female, education, log of firm size

industry 2 digit

DANISH DATA - Wages and Past Firm Changes

experience, firm tenure and industry tenure, log firm size,

year dummiers

experience, firm and industry tenure, female,

education

Fixed effect

Men - Full timeDept. Variable: Log of Hourly Wage

Whole sample