Abstract

Understanding the sources of earnings inequality across workers and firms is a fundamental issue in economics and an essential input for policymakers. In recent years, the access to big datasets following millions of workers and firms over time, allowed researchers to empirically disentangle the underlying drivers of earnings disparities. However, existing research assumes that inequality arises from two main sources and their interaction: permanent differences in the productivity of firms and workers and the sorting of productive workers into productive firms. We challenge these findings by adding an unstudied source of inequality. Namely, that some firms allow workers to accumulate human capital faster than others. This causes a wage premium that workers receive even after moving to a different firm. We aim to study this effect using German administrative data and a novel empirical method based on estimating how past employment trajectories of workers (across firms) affects their wage.