We decompose the real annual full time compensation costs of 1.1 million French workers followed over 12 years into a part that reflects their external opportunity wage and a part that reflects their internal wage rate. Using these components of compensation we investigate the extent to which firm-size wage differentials and inter-industry wage differentials are due to variability in the external wage (person effects) versus variability in the internal wage (firm effects). For France, we find that most of the firm-size wage effect and most of the inter-industry wage effect is due to person effects differences in the external wage rates.
*Published: This paper was subsequently published as Internal and External Labor Markets: An Analysis of Matched Longitudinal Employer-Employee Data, John M. Abowd, Francis Kramarz, in NBER book Labor Statistics Measurement Issues (1998)
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