Firm - Wide Versus Establishment - Specific Pay Practices

Although much has been learned about the role firms play in the labor market, whether establishments within the same firm adopt similar labor-market practices is an open question. This question is particularly relevant for firms with establishments in different locales and industries. For example, a finding that wages within a firm have a common component across unrelated workers and industries would support skill-segregation models like Kremer (1993). We construct a unique data set that links occupational data from separate establishments to the establishments’ ultimate beneficial owners. We use these data to decompose withinestablishment wage-level correlations, wage-change correlations, and employment-change correlations into components arising from random establishment effects, random firm within industry effects, and random firm effects. Looking first at occupational wages, we find significant within-firm wage heterogeneity across establishments and across industries. We also, however, find a statistically significant and economically meaningful wage component common to all establishments and all industries within individual firms. In this sense, we estimate that the internal labor markets of large, multiestablishment, multi-industry firms are partially linked throughout their entire organizations. Turning next to occupational employment changes, we find that employment changes are correlated across establishments within a three-digit industry, but employment-change correlations within individual establishments are much larger. We find no evidence that employment changes within firms are correlated across three-digit industries.