Abstract:A widely accepted premise is that promotions within firms and mobility across firms lead to significant earnings progression. Existing research generally has examined cross-firm mobility separately from hierarchical advancement. yet, as the authors' descriptive evidence from Danish panel data shows, how the two types of mobility interact is important for understanding earnings growth. Cross-firm moves at the nonexecutive level provide sizable short-run earnings growth (similar to the effect of being promoted t… Show more
“…In previous work (Forsythe 2018), I show that wage growth from occupational mobility depends on the direction of mobility: individuals who move to higher-quality occupations experience substantially faster wage growth than occupationalstayers, while those who move to lower-quality occupations experience substantially slower wage growth than stayers. Other papers have shown the importance of this directionality of mobility, in particular, Groes, Kircher, and Manovskii (2013), who document similar patterns of upward and downward mobility using Danish administrative data, and Frederiksen, Halliday, and Koch (2016), who use the same Danish data to find that wage returns match the direction of mobility for moves in and out of management.…”
With falling labor market dynamism in the United States, opportunities within firms take on increasing importance in young workers' career progression. Developing a variety of occupational ranking metrics, I show that occupational mobility within firms follows a standard life cycle pattern in which the frequency, distance, and wage return from mobility falls with age. However, when upward and downward mobility are considered separately, the average magnitude of directional mobility increases through middle age. I find that wage growth for young workers deteriorated substantially in the first decade of the 2000s, primarily driven by a reduction in wage growth within firms. Encouragingly, wage growth has improved markedly for young workers since 2012.
JEL Classification Codes: J24, J62, M51
“…In previous work (Forsythe 2018), I show that wage growth from occupational mobility depends on the direction of mobility: individuals who move to higher-quality occupations experience substantially faster wage growth than occupationalstayers, while those who move to lower-quality occupations experience substantially slower wage growth than stayers. Other papers have shown the importance of this directionality of mobility, in particular, Groes, Kircher, and Manovskii (2013), who document similar patterns of upward and downward mobility using Danish administrative data, and Frederiksen, Halliday, and Koch (2016), who use the same Danish data to find that wage returns match the direction of mobility for moves in and out of management.…”
With falling labor market dynamism in the United States, opportunities within firms take on increasing importance in young workers' career progression. Developing a variety of occupational ranking metrics, I show that occupational mobility within firms follows a standard life cycle pattern in which the frequency, distance, and wage return from mobility falls with age. However, when upward and downward mobility are considered separately, the average magnitude of directional mobility increases through middle age. I find that wage growth for young workers deteriorated substantially in the first decade of the 2000s, primarily driven by a reduction in wage growth within firms. Encouragingly, wage growth has improved markedly for young workers since 2012.
JEL Classification Codes: J24, J62, M51
“…A prime source of opportunity costs are large and persistent wage differentials between firms (Helpman et al, 2012) implying that even for similar tasks/occupations wages can differ substantially between firms. Accordingly, wage differentials offer room for employees to increase their wage by moving to better paying firms (Frederiksen et al, 2016;Keith and McWilliams, 1999;Yankow, 2003). Hence we propose our second hypothesis:…”
Section: Effects Of Wages On Mobility Under Exogeneity Of the Set Of mentioning
confidence: 94%
“…A prime source of opportunity costs are large and persistent wage differentials between firms (Helpman et al, ) implying that even for similar tasks/occupations wages can differ substantially between firms. Accordingly, wage differentials offer room for employees to increase their wage by moving to better paying firms (Frederiksen et al, ; Keith and McWilliams, ; Yankow, ). Hence we propose our second hypothesis: Hypothesis 2 (Inverse opportunity cost effect) : The higher the average wage level at the current employer relative to the average wage level in the industry, the less likely the inventor is to leave the firm.…”
Based on linked employer-employee panel data on all Swedish inventors, this paper analyses how wages affect inventors' job mobility. It is commonly assumed that higher wages reduce mobility because they reduce the value of outside opportunities. We argue that higher wages also send performance signals to potential employers, who raise their wage offers in response. By disentangling the effects of higher wages, we show evidence of a utility and an opportunity cost effect, which reduce mobility, and a performance-signalling effect, which increases mobility. In our data, the effects cancel each other out, with no effects of wages on mobility rates on average. We find, however, that for star inventors, who have sufficiently strong alternative performance signals (e.g., strong patent records), the performance signal sent by wages is crowded out by the alternative signals. Accordingly, for star inventors we find that higher wages decrease mobility.
“…Hence, top earners make only two to three times the salary of the median earner. 9 For a detailed discussion of the economic returns to within-and cross-firm mobility in Denmark (Frederiksen et al, 2016). 10 The two subgroups labelled DISCO code 121 DIRECTORS AND CHIEF EXECUTIVES and DISCO code 131 MANAGERS OF SMALL ENTERPRICES can be used to identify CEOs.…”
Section: ]mentioning
confidence: 99%
“… For a detailed discussion of the economic returns to within‐ and cross‐firm mobility in Denmark (Frederiksen et al ., ). …”
Using Danish registry data covering the population of Danish workers, we provide new and robust evidence with external validity on the importance of the breadth of human capital for top management appointments, and support/enrich the human capital theory of corporate leadership by Gibbons and Waldman and Lazear. Our analysis allows for both internal promotion and external recruitment as means to achieve top management appointments, and yields additional findings: the breath of human capital is more important in mature firms, as predicted by the theory; and the concept of firm‐specific human capital applies to the breadth of human capital.
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