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Economics in a picture

Economics in a picture

Job restructuring has an important role in explaining aggregate real wage variation



Aggregate real wage variation results from the combination of wages of new, exiting, and continuing firms. The decomposition of aggregate wage growth according to firm dynamics suggests that, in general, aggregate real wage growth is lower than the wage variation of job stayers (within component). Therefore, worker and job restructuring affect real wage growth negatively. 

Job restructuring has an important role in explaining changes in real wages. In the short-run, new firms contribute negatively to real wage growth, implying that average real wages of new firms are lower than average real wages of incumbents. Firm closures contribute positively to real wage growth, suggesting that on average real wages of exiting firms are lower than real wages of incumbents. This result tallies with a reallocation of resources toward more productive firms. Finally, high-wage firms seem to have increased their labour shares in the period from 2005 to 2008 while the opposite holds in the years from 2013 to 2016 (between component).




For more details see Sónia Félix and Pedro Portugal (2019) “How do firm dynamics and worker mobility influence real wage growth?” in Portuguese economic growth: A view on structural features, blockages and reforms, Banco de Portugal.

Prepared by Sónia Félix and Pedro Portugal. The analyses, opinions, and findings expressed above are those of the authors and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.


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