Working Paper Series,
Trade Union Institute for Economic Research

Abstract: This paper uses a large matched employer-employee data set for Sweden to study the relationship between firm age and individual wages, systematically addressing a variety of possible explanations for observing a firm-age wage effect. Results show considerable heterogeneity across years, along segments of the firm age distribution and across industries. A positive and significant firm age-wage premium, robust to a number of control variables, is found in 1995. This effect is not found for 1987 and 1991, two periods characterised by different business cycle conditions than 1995. The relationship between firm age and wages is not monotonic; rather it varies along segments of the firm age distribution. It also differs systematically across different sectors of the economy. A positive firm age effect is found only in the manufacturing sector. Finally, taking into account that larger firms are also older firms, results show that inclusion of firm age does not alter the positive effect of firm size on wages.

Keywords: Wages; firm age; firm size; matched employer-employee data

JEL-codes: J21; J31; J63

31 pages, May 25, 2004

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