Abstract

In traditional economic models the wage represents an exogenous variable for firms and employees determined by the supply and demand for workers. Alternative theoretical approaches of the wage policy of firms as well as recent empirical studies suggest, however, that firms use compensation schemes as an incentive device and to meet the preferences of their employees. Based on these theories and empirical observations, the research project focuses on several questions. First, it aims to investigate whether observed wages in firms are compatible with the presence of long-term compensation strategies. Second, we analyze whether these compensation schemes affect the adjustment behavior of firms to changes in labor market conditions and how they affect the career path of employees. Finally, we will analyze whether the mobility of employees facilitates the adjustment of wages observed at the firm level towards the prevailing market wage. The empirical analysis will be based on linked employer-employee panel data of several sectors available at the IAB, which will be enriched with semi-aggregated sectoral and regional data.