Nber working paper series earnings dynamics and firm-level shocks

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 passthrough 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. Benjamin Friedrich Kellogg School of Management Strategy Department 2211 Campus Drive Evanston, IL 60208 benjamin.friedrich@kellogg.northwestern.edu Lisa Laun Institute for Evaluation of Labour Market and Education Policy (IFAU) Box 513 SE-751 20 Uppsala Sweden Lisa.Laun@ifau.uu.se Costas Meghir Department of Economics Yale University 37 Hillhouse Avenue New Haven, CT 06511 and IZA and also NBER c.meghir@yale.edu Luigi Pistaferri Department of Economics 579 Serra Mall Stanford University Stanford, CA 94305-6072 and NBER pista@stanford.edu