Workforce Composition and Individual Wages — An Employer–Employee Data Analysis
| DOI | http://doi.org/10.1111/bjir.12519 |
| Author | Annekatrin Niebuhr,Jan Cornelius Peters |
| Date | 01 September 2020 |
| Published date | 01 September 2020 |
British Journal of Industrial Relations doi: 10.1111/bjir.12519
58:3 September 2020 0007–1080 pp. 719–742
Workforce Composition and Individual
Wages — An Employer–Employee Data
Analysis
Annekatrin Niebuhr and Jan Cornelius Peters
Abstract
The study analyses the impact of workforce composition and employee isolation
— based on age, gender and citizenship — on entry wages of new employment
relationships in German firms using employer–employee data. We allow for
heterogeneous eects across distinct groups of workers and include worker and
firm fixed eects to account for selection eects and unobserved heterogeneity.
The results point to a negative impact of gender and age diversity for males
and females, natives and foreigners and workers across the skill spectrum.
Only for high-skilled workers, the negative eect of gender diversity is not
statistically significant. Femalesreceive, in addition, relatively lowentry wages in
establishments with a rather old workforce. With regard to the relative position,
mainly gender isolation tends to exert an important influence on entry wages.
The eect is positive only for females. In contrast, we estimate significant
negative wage eects for males, natives, medium- and high-skilled workers. An
international background of a firm’s workforce and cultural isolation do not
appear to generally aect entry wages.
1. Introduction
Demographic change, immigration and the increasing labour market
participation of women give rise to significant changes in workforce
Annekatrin Niebuhris at IAB Nord Regional Research Networkof the Institute for Employment
Research,Institute for Employment Research, Kiel, Germany andEmpirical Labour Economics
and Spatial Econometrics, Department of Economics, Christian-Albrechts-Universit¨
at zu Kiel,
Kiel, Germany.
Jan Cornelius Peters’spresent address is Institute of Rural Studies,Johann Heinrich von Th ¨
unen
Institute, Braunschweig,Ger many. His former address is IAB Nord, RegionalResearch Network
of the Institute for Employment Research,Institute for Employment Research, Kiel, Germany.
Additional results and copies of the computer programsused to generate the results presented in
the article are available upon request. The data used in the empirical analysis may be accessed at
the ResearchData Centre (FDZ) of the German Federal Employment Agency at the Institute for
Employment Research(IAB).
C
2020 John Wiley& Sons Ltd.
720 British Journal of Industrial Relations
composition. This might have important economic consequences. We
investigate the wageeects of workforce composition and employee isolation
in a sample of German firms focusing on the entry wages of newly established
employment relationships. A growing empirical literature indicates that the
characteristics of co-workers matter for workers’ productivity, wages and
turnover. Comprehensive studies on the issue are, however, still scarce and
the evidence so far is ambiguous. This corresponds with dierent theories
providing partly conflicting hypotheses about the wage and productivity
eects of workforce composition and worker isolation.
Consequently, dierent strands of literature are relevant to our analysis. A
first group of studies deals with the economic eects of labour forcediversity.
Diversity may give rise to productivity gains because distinct groups of
workersmight complement each other in production processes. But significant
costs are also likely as heterogeneitymight hamper communication and cause
conflict in the workplace (Lazear 2000). Several papers investigate the impact
of diversity on firm productivity (e.g.Garnero et al. 2014; Parrotta et al. 2014;
Tra x etal. 2015). However,many studies focus on cultural diversity and eects
on individual wages are rarely considered.
Second, our study is related to the literature dealing with the impact
of workers’ group size in firms on wages and productivity. Discriminatory
behaviour (Becker 1971) or referral-based job search networks (Dustmann
et al. 2016) might give rise to a systematic relationship between wages and
the share of (minority) workers, where the groups can be defined according
to distinct demographic characteristics such as ethnicity, gender or age.
Dustmann et al. (2016) use the share of the own ethnic group in the firm as a
proxy for a referralhire. Their estimates suggest that referrals result in higher
wages and lower turnover in Germany. Leonard and Levine (2006) focus on
turnover in a large firm in the United States and showthat worker isolation is
often associated with a high probability of leaving the firm.
Leonard and Levine (2006) note that there areonly a few convincing studies
investigating the impact of diversity and the workers’ relative position on
dierent outcomes. And there is only little evidence on individual outcomes.
Often findings base on case studies that tend to look at the composition of
specific work-teams. The corresponding evidence is far from unambiguous
and external validity is, of course, a concern. Furthermore, often cross-
sectional data are used and thus it is dicult to deal with important
econometric problems such as selection and unobserved heterogeneity
(Garnero et al. 2014).
We investigate the eects of workforce composition and employee isolation
on entry wages in a sample of German firms. As we focus on the wages
associated with new employmentrelationships, the eects refer to the expected
productivity of newlyhired worker in the corresponding working environment
and/or discriminatory behaviour. Germany is well suited for a corresponding
analysis as demographic change, immigration and the increasing female
labour market participation result in a significant variation in workforce
composition with respect to age, gender and citizenship. Other dimensions
C
2020 John Wiley& Sons Ltd.
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