Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 729: How Wage Compression Affects Job Turnover

Fredrik Heyman ()
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Fredrik Heyman: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: I use Swedish establishment-level panel data to test Bertola and Rogerson’s (1997) hypothesis of a positive relation between the degree of wage compression and job reallocation. Results indicate that the effect of wage compression on job turnover is positive and significant in the manufacturing sector. The wage compression effect is stronger on job destruction than on job creation, consistent with downward wage rigidity. Further results include a strong positive relationship between the fraction of temporary employees and job turnover and a negative relationship between the amount of working-time flexibility and job reallocation.

Keywords: Job Creation and Job Destruction; Wage Dispersion; Temporary Employment Contracts; Panel Data

JEL-codes: J21; J31; J63

24 pages, January 28, 2008

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