Life-cycle wage growth and firm productivity in developed and developing economics

Life-cycle wage growth rates vary significantly across countries. In this paper, we examine the role of the local distribution of firm productivity in shaping life-cycle wage profiles by introducing a random search model that disentangles the effects of firm productivity distribution, on-the-job learning, and labor market frictions on life-cycle wage growth. Using data from Brazil, Colombia, and the United States, we document strong correlations between the firm productivity distribution-proxied by the share of large firms in the economy-and the steepness of life-cycle wage trajectories. Estimates of the model for the three countries suggest that the shape and scale of the firm-type distribution are key factors in explaining the steepness of life-cycle wage growth. Additionally, counterfactual simulations suggest that equating the firm-type distribution in Brazil and Colombia to that of the United States would fully close the cross-country gap in the steepness of workers' life-cycle wage trajectories.