Firming Up Careers: Human Resource Policies and Inequality

Recent research from Europe and the US shows that firms account for an important share of rising pay differences – even within narrowly defined jobs or industries. Despite these trends and the growing availability of data, we know surprisingly little about what goes on inside the firm and why the firm matters. The principal obstacle has been that measures of HR practices have proven difficult to obtain for a representative sample of firms. The goal of this research project is to overcome this challenge and to take a deeper look at the HR practices of firms. To that end, we develop a new survey method that draws on existing Norwegian administrative labor market data. This unique combination allows us to offer a comprehensive picture of what is really going on inside the firms and to understand HR departments as drivers of wage inequality. To achieve this goal, we organize the project into three parts. In the first part, we will examine how HR departments operate in the external labor market by exploring differences in recruitment methods that firms use when hiring workers with different skill levels, from other firms, and from unemployment. In the second part, we explore how firms organize their internal labor markets. This involves assessing how their workforce is organized in teams and hierarchies, the role of promotions and career opportunities inside the firm for retention and wage growth. We will also explore the questions of whether employees are aware of the opportunities and how they value the internal relative to the external labor market. In the third part, we will examine the importance of job market information for workers and the distributional implications informational barriers. The project aims to advance the profession's understanding of how modern labor markets work and what public and corporate policy can do to address social challenges to rising wage inequality.

Firms’ human resource policies play an important role in shaping individual workers’ careers and overall inequality. The key challenge with identifying the role that firms play in shaping workers’ careers is that existing worker-firm datasets, such as Norwegian register data, do not include information on what goes on inside of firms. For instance, these data do not include information on how firms advertise or fill vacant positions, how workers learn about these positions, or how firms organize their internal hierarchies. This project aims to advance our understanding of the determinants of HR policies and the consequences of these policies for individual careers and for labor market inequality. In order to do so, the researchers will establish a research infrastructure that combines the strength of the Norwegian administrative data with recent advancements in survey design. The research infrastructure will allow them to open the "black box" of firms’ HR policies and make three distinct contributions. In the first project, they will use the infrastructure to develop and validate new survey instruments for measuring firms’ internal HR policies. This will allow them to describe determinants of firm recruitment policies, how practices differ across firms and workers, and whether different recruitment strategies reinforce existing labor market inequalities. In the second project, they will explore workers’ search across and within firms and examine the value workers attach to internal labor markets. This will leverage experiments embedded in the worker survey, as well as recent techniques to measure the organizational structure of firms. The third project will estimate the value that workers place on information about the outside labor market. In doing so, it contributes to an ongoing academic and policy discussion about the role of information in the labor market.