Firms as Learning Environments: Implications for Earnings Dynamics and Job Search

Gregory, Victoria

doi:10.20955/wp.2020.036

Working Paper Revision

Firms as Learning Environments: Implications for Earnings Dynamics and Job Search

Abstract: This paper demonstrates that heterogeneity in firms' promotion of human capital accumulation is an important determinant of life-cycle earnings inequality. To arrive at this finding, I develop a life-cycle search model with heterogeneous workers and firms. In the model, a worker's earnings can grow through both human capital accumulation and labor market competition channels. Human capital growth depends on both the worker's ability and the firm's learning environment. I apply the model to administrative micro data from Germany. While bringing the model to the data, I find evidence of substantial variation in human capital growth across establishments that is also related to establishment characteristics designed to encourage learning. I find that heterogeneity in firm learning environments accounts for 40% of the increase in the cross-sectional earnings variance over the life cycle, and that this mechanism is especially important for young workers.

Keywords: human capital; earnings dynamics; firms; inequality; search; labor markets;

JEL Classification: E24; J24;

https://doi.org/10.20955/wp.2020.036