Life‐Cycle Wage Growth and Firm Productivity in Developed and Developing Economies

ABSTRACT

Life‐cycle wage growth varies substantially across countries. We study the firm productivity distribution's role in a random‐search model with learning and labor‐market frictions, estimated for Brazil, Colombia, and the United States. Brazil has a long left tail of low‐paying firms, and Colombia has a highly compressed firm ladder. Replacing each country's firm distribution with that of the United States closes most of the cross‐country gap in wage growth, raising Brazil's relative wage growth from 73 to 103 percent and Colombia's from 52 to 115 percent. The results are robust to alternative distributional assumptions and additional sensitivity checks.