Wages, Productivity, and the Dynamic Interaction of Businesses and Workers

This paper exploits a new matched universal and longitudinal employer-employee database at the US Census Bureau to empirically investigate the link between firms' choice of worker mix and the implied relationships between productivity and wages. We particularly focus on the decision making process of new firms and examine the role of both learning and selection. Our key empirical results are: (i) We find substantial and persistent differences in earnings per worker, output per worker, and worker mix across businesses within narrowly defined industries, which remain even after controlling for other observable characteristics. (ii) We find that new businesses exhibit even greater heterogeneity in earnings and productivity than do mature businesses, but that they adjust to the mature business pattern as they age. The adjustment process, while different for earnings and productivity, is consistent both with firms learning as they age and with the exit of mistake' prone firms. (iii) The dynamics of the reduction in productivity heterogeneity of new firms as they age is both complex and very different from the dynamic reduction of earnings heterogeneity.

Establishment Wage Differentials

Economists have long known that individual wages depend on a combination of employee and employer characteristics, as well as the interaction of the two. Although it is important to understand how employee and employer characteristics are related to wages, little is known about the magnitude and relation of these wage effects. This is primarily due to the lack of microdata which links individuals to the establishments where they work, but also due to technical difficulties associated with separating out employee and employer effects. This paper uses data from the Occupational Employment Statistics program at the Bureau of Labor Statistics that permit both of these issues to be addressed. Our results show that employer effects contribute substantially to earnings differences across individuals. We also find that establishments that pay well for one occupation also pay well for others. This paper contributes to the growing literature that analyzes firms’ compensation policies, and specifically the topic of employer effects on wages.Establishment Wage Differentials; Occupational Employment Statistics

Business Employment Dynamics: Tabulations by Employer Size

The gross job gains and gross job loss statistics from the BLS Business Employment Dynamics (BED) program measure the large gross job flows that underlie the quarterly net change in employment. In the fourth quarter of 2004, employment grew by 869,000 jobs. This growth is the sum of 8.1 million gross job gains from opening and expanding establishments, and 7.2 million gross job losses from contracting and closing establishments. The new BED data have captured the attention of economists and policymakers across the country, and these data are becoming a major contributor to our understanding of employment growth and business cycles in the U.S. economy. Following the initial release of the BED data in September 2003, the BED data series expanded in May 2004 with the release of industry statistics. The BLS then began work on tabulations by size class. The production of size-class statistics is a complex task involving several economic and statistical issues. Although it is trivial to classify a business into a size class in any given quarter, it is difficult to classify a business into a size class for a longitudinal analysis of employment growth. Several different classifications exist, and many of these possible classifications have appealing theoretical and statistical properties. Furthermore, these alternative classification methodologies result in sharply different portraits of employment growth by size class. In this article, we discuss the alternative statistical methodologies that the BLS considered for creating size class tabulations from the Business Employment Dynamics data. Our primary focus is on four methodologies: quarterly base-sizing, annual base-sizing, mean-sizing, and dynamic-sizing. We discuss the evaluation criteria that BLS considered for choosing its official size class methodology.gross job gains; gross job losses; business employment dynamics; size-class statistics; dynamic-sizing

Exploring Differences in Employment between Household and Establishment Data

Using a large data set that links individual Current Population Survey (CPS) records to employer-reported administrative data, we document substantial discrepancies in basic measures of employment status that persist even after controlling for known definitional differences between the two data sources. We hypothesize that reporting discrepancies should be most prevalent for marginal workers and marginal jobs, and find systematic associations between the incidence of reporting discrepancies and observable person and job characteristics that are consistent with this hypothesis. The paper discusses the implications of the reported findings for both micro and macro labor market analysis.