> Rockwool Foundation Discussion Papers No. 081/26
Men experience workplace injuries at roughly twice the rate of women. We study whether compensating differentials for injury risk contribute to gender differences in firm pay policies. We develop a search model that microfounds an AKM wage equation, decomposing firm pay effects into productivity and injury-risk components. Using Italian matched employer–employee data with individual injury records, we estimate gender-specific firm wage effects and firm-level injury risk. We find that injury-related channels account for 8 percent of the gender gap in firm wage effects, rising to 17 percent in manufacturing. While women receive only 86 percent of men’s wage response to firm-level injury risk, conditioning on broad occupation eliminates this within-firm disparity. This indicates that the injury channel reflects sorting across firms and occupational allocation within firms, rather than differential pricing of identical risk.
Workers as Partners: a Theory of Responsible Firms in Labor Markets
What happens when employers value worker welfare in frictional labor markets? We show this “responsibility” creates an endogenous wedge in the marginal labor cost—akin to a hiring subsidy—altering wage and vacancy incentives rather than only changing the surplus split. The wedge is strongest when outside options are weak and separations rare, implying larger wage premia in slack, low-mobility markets. In a wage-posting model with on-the-job search, responsible firms may occupy the high-wage segment even when less productive. In a DMP model, responsible firms commit to higher worker bargaining power, raising the value of unemployment and thereby wages at regular firms.
We study staged entry with costly gatekeeping in a differentiated-products economy: entrepreneurs observe noisy signals before paying a resource-intensive activation cost. Precision improves selection but requires more resources, reducing entry and variety: welfare need not rise with precision. Under CES preferences, the activation cutoff is efficient as profit displacement offsets the consumer-surplus gain from variety. Welfare losses arise from verification costs shrinking the feasible set of varieties, not from misaligned incentives. Because the market responds efficiently to any given regime, these losses cannot be corrected via Pigouvian taxes.
The Importance of Working for Earnest: Climbing the Job Ladder through Firms’ Connectivity
Do workers consider a firm’s “springboard” value in terms of future job opportunities when choosing an employer? Using a search model of the labor market, I introduce the idea that firms differ in enhancing their employees’ chances of receiving external job offers. The model informs a firm-level proxy for outside job offers received by workers. This measure empirically aligns with key model predictions: 1) it negatively correlates with both firm-specific tenure and young workers’ entry salaries, revealing a compensating differential; and 2) it suggests that workers enjoy a salary premium upon leaving such firms, indicative of faster career progression. The model is estimated on administrative data from Italy and successfully captures key aspects of labor market dynamics. My channel explains 10% of the overall job-to-job transitions and shows how firm-induced variation in job search can be a significant driver of inequality, especially at the bottom of the wage distribution.
The Heterogeneous Consequences of Reduced Labor Costs on Firm Productivity
We document how a reduction in labor costs led to heterogeneous effects on manufacturing firms’ total factor productivity (TFP). Leveraging an Italian labor legislation reform and unique institutional features of the local collective bargaining system, we show that such effects vary along the TFP distribution. Relative to the counterfactual, TFP markedly declines on the left tail, which we explain via selection mechanisms; on the right, TFP mildly increases as firms are able to expand and reallocate their workforce. We develop a general equilibrium model featuring firm selection and frictions in input markets to guide the evaluation of welfare implications.
TWICE: Tree-based Wage Inference with Clustering and Estimation
How much do worker skills, firm pay policies, and their interaction contribute to wage inequality? Standard approaches rely on latent fixed effects identified through worker mobility, but sparse networks inflate variance estimates, additivity assumptions rule out complementarities, and the resulting decompositions lack interpretability. We propose TWICE—Tree-based Wage Inference with Clustering and Estimation—a framework that models the conditional wage function directly from observables using gradient-boosted trees, replacing latent effects with interpretable, observable-anchored partitions. This trades off the ability to capture idiosyncratic unobservables for robustness to sampling noise and out-of-sample portability. Applied to Portuguese administrative data, TWICE outperforms linear benchmarks out of sample and reveals that sorting and non-additive interactions explain substantially more wage dispersion than implied by standard AKM estimates
We revisit the wage decomposition literature by allowing for a non-parametric function of both worker- and firm-level covariates in a wage equation with two-way (worker and firm) fixed effects. We develop theoretical results about the estimation of key covariance components and an application on Portuguese data.
Drivers of Lifetime Earnings and Wealth: Skills, Frictions and Choices
What drives lifetime income inequality? We estimate a continuous-time lifecycle model incorporating human capital accumulation, innate ability, search frictions, job wage premia, and non-wage amenities. Workers make consumption-savings decisions, and their asset position affects job acceptance. We estimate the model on Danish matched employer-employee data for 2008–2023. Counterfactuals show that innate ability is the dominant source of lifetime earnings inequality, accounting for over 90 percent of the variance. Search frictions and amenities matter for welfare rather than earnings: removing frictions reduces lifetime utility inequality by nearly 80 percent while leaving earnings inequality unchanged. Finally, several mechanisms have opposite effects on cross-sectional versus lifetime inequality, showing that the two measures provide different information.
We construct individual-level wage markdowns—ratios of worker-specific labor claims to observed wages—that allow for within-firm heterogeneity in skills and occupational roles while satisfying firm-level accounting identities. Decomposing markdown dispersion into firm, worker, occupation, market, and match components using Portuguese matched employer-employee data, we find three main results. First, firm and worker components are both sizeable, and covariance terms are negative and economically meaningful. Second, tenure is negative in both the baseline and local-labor-market specifications, and becomes uninformative in the fully saturated match model. Third, market concentration is negatively associated with the estimated market markdown component in all occupation groups, with the largest magnitude for service/manual workers.
> Project awarded with a Netspar Comparative Research Grant 2021
> Draft available on request
We develop an OLG model with heterogeneous agents and aggregate uncertainty to study optimal Ramsey taxation when the government can use a credible set of social security instruments. Social security mitigates the income effect in optimal labor tax smoothing and, together with heterogeneity, adds new redistributive motives to both labor and capital taxes while crowding out others. We calibrate the model on three different economies: the US, the Netherlands, and Italy. We argue that the three countries would experience heterogeneous gains, in redistributive and efficiency terms, by moving from the status-quo allocations to those prescribed by a utilitarian Ramsey planner. Our simulations show that retirement benefits in the current economies are higher than their Ramsey-optimal level while we argue that the use of funded social security schemes, neglected in current actual policies, could be welfare improving.
In local labor markets, a pattern often emerges where workers transition during the early stages of their careers from lower-paying firms that provide comprehensive training to higher-paying specialized firms that predominantly employ already-trained workers. We refer to this mechanism as the “Human Capital Value Chain” (HCVC). We study and document its impact on the trajectory of workers' wages and local agglomeration externalities, thereby highlighting its role in the broader labor market dynamics.