Wage dispersion and allocation of jobs

This paper use Swedish establishment-level panel data on job turnover and wages to test the hypothesis of a positive relation between job reallocation and wage compression as proposed by Bertola & Rogerson (1997). The effect of wage dispersion on job turnover is negative and significant in the manufacturing sector. The wage compression effect is stronger on job destruction than on job creation, suggesting that wages are more rigid downward than upward. For the service sector results are reversed. Further results include (i) a strong positive relationship between the industry share of temporary employees and job turnover and (ii) a negative relationship between the amount of working-time flexibility and job reallocation. The estimation method is industry fixed-effect models that control for sector heterogeneity.