If larger firms have more complex internal labor markets, several theories are consistent with the prediction that larger firms give their workers greater percentage wage increases. In Chapter 1, I use detailed Swedish data to estimate wage gaps between large and small firms for each of 36 worker ages. The consistent cross-sectional pattern is that the observed percentage wage gap between large and small firms increases with age for white collar workers only, a finding which I replicate to some degree using American data. This finding for wage level gaps in consistent with an explanation that workers of particular abilities systematically move between large and small firms, or an internal labor markets explanation that wages for firm stayers increase more quickly at larger firms. Using the Swedish data, I examine the switching story by including worker fixed effects, and I find that predicted wage gaps between large and small firms still increase with age. I then directly examine percentage wage increases at large and small firms. I find that observed percentage wage increases are indeed higher at larger firms, which is consistent with internal labor market explanations for the age pattern of wage level gaps.
A precondition for a competitive spot labor market is that voluntary employer switching must respond to unilateral wage increases. In Chapter 2, I investigate whether the employer switching of white collar workers responds to outside wage offers. Institutional features imply that voluntary turnover dominates switching in the market for Swedish engineers. I use data on the allocation of engineers across employers to estimate the relative importance of several employer characteristics in a dynamic programming, discrete choice model of voluntary employer choice. I find that, under a stylized labor market scenario where all 348 identical firms are 100 km apart, workers have moderately high switching costs. One firm faces labor supply elasticities for unilateral wage changes of 7 for age 25-29 workers and 2 for age 55-59 workers. Spot markets for experienced white collar workers suffer from strong rigidities, but the labor supply of experienced workers can adjust to market shocks in significant ways.
My Research