Abstract
This paper analyzes the dynamics of wages and worker mobility within firms with hierarchical
structures of job levels. The paper empirically implements the theoretical model proposed by
Gibbons and Waldman (1999) that combines the notions of human capital accumulation, job
rank assignment based on comparative advantage and learning about workers’ ability. The
paper measures the importance of these elements in explaining intra-firm wage and mobility
dynamics using survey data from the German Socio-Economic Panel (GSOEP). The use of
this data set makes it possible to examine this issue over a large sample of firms and draw
conclusions about the common features characterizing firms’ wage policy. The GSOEP survey
also provides information about workers’ job ranks within the firm that is unavailable in most
surveys.
The results of the estimation are consistent with non-random selection of workers onto
the rungs of the firm’s job ladder. There is no direct evidence of learning about workers’
unobserved ability but the analysis reveals that unmeasured ability is an important factor
driving wage dynamics. Job rank effects remain significant even after controlling for measured
and unmeasured characteristics.
Key words: Wage dynamics, intra-firm mobility, human capital accumulation, unob-
served heterogeneity, learning
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