Kerstin Holzheu

Using three European matched employer-employee data sets, I show that workers experiencing high positive or negative changes in wages subsequently have a high propensity of job separation. In all three data sets, a change in wages of 10 percentage points above or below the median coincides with roughly 30% higher odds of job separation. The pattern is more pronounced among low experience workers. Theoretically, I rationalize the empirical finding as a result of information and labor market frictions in a random search model with two-sided heterogeneity and symmetric learning about worker ability. In the framework, workers with low experience have a high initial volatility of wage changes and move between firms to enjoy productivity benefits. I allow for additional channels of wage growth through contract renegotiation and dynamic match productivity and let firms differ in the volatility of production shocks. In the model, workers can partially reduce their wage exposure to productivity shocks by accumulating wage negotiation capital such that the volatility of wage changes falls endogenously on the job ladder. An uneven distribution of volatile firms along the job ladder further increases wage stability with experience. I thereby show that the job ladder does not only determine worker's level of wages but can also account for part of its variability.

Many studies use matched employer-employee data to estimate a statistical model of earnings determination where log-earnings are expressed as the sum of worker effects, firm effects, covariates, and idiosyncratic error terms. Estimates based on this model have produced two influential yet controversial conclusions. First, firm effects typically explain around 20% of the variance of log-earnings, pointing to the importance of firm-specific wage-setting for earnings inequality. Second, the correlation between firm and worker effects is often small and sometimes negative, indicating little if any sorting of high-wage workers to high-paying firms. The objective of this paper is to assess the sensitivity of these conclusions to the biases that arise because of limited mobility of workers across firms. We use employer-employee data from the US and several European countries while taking advantage of both fixed-effects and random-effects methods for bias-correction. We find that limited mobility bias is severe and that bias-correction is important. Once one corrects for limited mobility bias, firm effects matter less for earnings inequality and worker sorting becomes always positive and typically strong.

Note: For code cf. here.

Can specialization – the average distance of the worker’s skill set from skill profiles prevalent in the economy – confer both positive and negative returns? We quantitatively show in a random search framework that more specialized workers i) suffer larger mismatch penalties on average, leading to lower job finding rates, but ii) enjoy higher gains from worker-firm complementarity in well-fitted jobs, reflected in higher starting wages and lower separation rates. The theoretical model indicates that the acquisition of more specialized skills may or may not yield an augmented lifetime income for workers. Hence, the acquisition of more specialized skills can come at a loss of lifetime income for some workers. Informed by the model, we analyze the labor market outcomes of exogenously displaced workers in the US and in France and provide empirical evidence for the two faces of worker specialization.

With about 1/5th of all jobs changing each year, labor mobility is a potentially significant source for idea exchange in the economy. In this paper, we analyze the effect of labor mobility and innovation on productivity growth in the economy. First, by leveraging administrative data for Sweden, we show suggestive evidence at the macroeconomic level that both the extent and direction of worker mobility correlates with firm productivity. With event-study analysis based on exogenous worker deaths and shift-share international trade shocks, we proceed to verify such relationship at the microeconomic level. Second, we develop a multi-worker framework with random search and on-the-job mobility to estimate the relative size of the contribution of worker mobility and R&D to growth. Estimated on a balanced growth path using our Swedish microeconomic data,  we find that up to 70% of output growth can be attributed to firm innovation. Intuitively, our results change significantly with the relative efficiency of on-the-job search and suggest that slowdown of worker mobility can depress aggregate economic growth.

Life-cycle income growth rates differ significantly across countries. In this paper, we study the relative importance of human capital accumulation, labor market frictions and labor market opportunities in shaping life-cycle age-income profiles in Brazil, Colombia and the United States. Through the lens of a random search model with learning on the job, we find that labor market opportunities are important driver of differences in the life-cycle wage profile across these three countries.

How does the quality of job matches affect the aggregate economy? In this paper, we study how specialization, i.e. the growing adaptation of workers to their job, can amplify business cycles. On the one hand, specialization can increase output and job stability when aggregate productivity is high. On the other hand, worker specialization can decrease the odds of job finding after displacement when aggregate productivity is low. To quantify their impact, we solve and estimate a random search model with multidimensional skills and aggregate shocks using neural networks. We estimate the model on French and US data. Differently from the literature, our estimation procedure with neural networks allows fitting of any empirical moment vector as a plug-in, facilitating cross-country comparisons about the importance of specialization.

While tax avoidance has been identified as the primary behavioral response to inheritance and gift taxation, relatively few is known about the  potentially negative externalities of inheritance and gift tax avoidance on production, employment and output of  firms being transferred from one generation to the next. In this paper, we study the effect of business gift tax avoidance on firm growth and employment in Germany.  Since 2009, the German inheritance and gift tax law creates an incentive to downsize before a firm transfer. We estimate excess separations before ownership transfer of family firms to quantify the efficiency cost of inheritance and gift tax avoidance in Germany, where family firms represent the backbone of the economy. We find that affected firms cut 5 to 20% of firm size before firm transfer.

Ongoing Projects:

Preview: What can firm amenities tell us about sorting? 

Recipient of AUFF NOVA grant.