http://www.iser.essex.ac.uk/publications/working-papers/iser/2009-12

Earnings profiles of individuals depend not only on the characteristics of workers and their employers, which may be both observable and unobservable, but also on the quality of the match between the two. The quality of the match is determined when the worker enters the firm and while successful matches are likely to continue, unsuccessful ones are likely to result in separations of workers from the firm. Both good and bad matches are at risk of job mobility. Good matches may lead to internal mobility (promotions) while bad matches lead to permanent separations from firms. Typically, analyses of the impact of job mobility on wages focus either on moves within a firm, or between firms, making it difficult to compare changes in wages associated with each type. Furthermore, although much of the differences in wages are not explained by what we can observe, the nature of most data sets does not allow us to identify the effect of unmeasured factors relating to the worker, the firm and the match between the two. We make three main contributions to the existing literature. Firstly, using the same data set we compare the impact on wages of promotions within firms and of moving between firms, and therefore provide a direct comparison of the returns to both forms of job mobility. Second, we include observable characteristics of both workers and firms as determinants of wages. Third, we separate the total unobserved effect in order to identify and compare the shares of wage variation that are due to unobservable worker, firm and match effects across types of job mobility. Our results suggest that more than 90% of the total variation in wages can be explained by observed and unobserved characteristics of workers and firms. Taken together, worker and firm unobserved effects explain more than half of the variation of wages for all types of job mobility. Although unobserved match effects explain little of the variation in wages of promoted workers, they are more important in explaining entry wages of workers that have experienced between firm mobility. Despite finding little difference between automatic and merit promotions, we identify observed wage premiums to promotions generally and establish that promoted workers are high wage workers employed in high wage firms with which they match well. Differences appear for workers that have separated from firms. Workers that enter a new firm within one year of separation from their old firm are improving their position by moving to higher paying firms with which they match better. Workers that enter a new firm more than one year from separation have the worst outcomes: they move to lower paying firms with which they match worse. These differences suggest that these separations are driven by two distinct processes. Workers that find a new job within one year are more likely to have been quits, whereas those that take more than 12 months to do so are more likely to have been laid off from firms.

We investigate the returns to promotions and separations from firms using Portuguese linked employer-employee data. More than 90% of the total variation in wages can be ex- plained by observed and unobserved characteristics of workers and firms. Taken together, worker and firm unobserved effects explain more than half of the variation of wages for all types of job mobility. Our results suggest that promoted workers are high wage workers in high wage firms. Movers are inherently lower wage workers, in lower wage firms. However, on average, workers that find a new job within one year enter firms that pay higher wages. This is not true for workers that take more than a year to find a new job. Working Paper 2009-12 2009-03-31 Priscila Ferreira Institute for Social and Economic Research paferr@essex.ac.uk http://prisferr.googlepages.com