From the estimation of the model, the dynamics of wages within German firms reveal the
importance of unmeasured (by the econometrician) ability driving the assignment of workers
to the different rungs of the firm’s job ladder with higher ability workers assigned to the
top level positions. On the other hand, I do not find evidence that learning about workers
unobserved ability generates mobility across job levels. This may be due to the importance
of the apprenticeship system in Germany in which most of the learning about the quality of
the match worker-firm would take place before individuals finish school. Finally, the results
obtained when including firm changers are similar to those over the sample of firm stayers.
This suggests that the unmeasured quality of the match between the worker and his job level
in the job hierarchy is not entirely firm-specific.
The results of this paper show the importance of the question of assignment of workers to
job ranks on our understanding of wage dynamics within as well as between firms. The evidence
on the presence of non-random selection of workers onto the rungs of the job ladder brings an
additional explanation for the fact that the distribution of wages differ from the distribution
of individual productivity at the level of the firm. These results show that wage dynamics
within the firm depend not only on the worker’s ability (innate ability or quality of the match
worker-firm) but also on how productive this ability (or match) is within a specific job rank.
The importance of self-selection of workers based on unmeasured ability in the determination
of German wages may seem surprising given that the German labor market is regulated by
unions and employers’ associations which would suggest that pay settings are more related
to bureaucratic rules. On the other hand, pure rank wage premia remain significant even
after controlling for measured and unmeasured individual heterogeneity. This would suggest
that administrative rules resulting from collective bargaining agreements remains a significant
factor explaining the wage dynamics within German firms.
The estimation of the model of Gibbons and Waldman over a large sample of firms made
it possible to draw general conclusions on the common features characterizing mobility and
wage dynamics for German workers. It would obviously be interesting to compare them with
US data. To my knowledge, there is no American survey data with a question on the job rank
of the worker. However, it would be possible to construct variables on job levels by using the
three-digit codes from the U.S. Census which provide a detailed classification of occupations.
Future research should investigate this issue because if the model of Gibbons and Waldman
provides a reasonable explanation of wage dynamics in German firms it may be even more
relevant in U.S. firms (where the mobility of workers, on which the model is based, is higher
than in Germany).
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