Earnings Premia from Entering a Superstar Firm

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Abstract

We analyze whether workers who join superstar firms – the most productive and high-market-share companies in each industry – enjoy higher earnings than similar workers elsewhere. Using comprehensive Swedish administrative data, we classify superstar firms as those that rank among the top five in terms of value-added per worker and track workers’ annual wages (log earnings) over time. We employ multiple empirical models aimed for comparing long-term and short-term earnings gains for workers in superstar firms versus other firms. We find that employees of superstar firms earn more than peers in ordinary firms. This advantage appears upon entering a superstar firm and persists through the career. It persists also if workers leave super star firms to work in other parts of the private sector. Workers who begin their careers at a superstar firm also maintain higher earnings trajectories. Importantly, adding observed cognitive and non-cognitive skill measures to our models do not appreciably reduce the superstar premium (net of education), implying that worker selection on ability beyond education is not driving the observed premium. Our findings thus indicate that superstar firms distribute a share of their productivity advantage among their employees. This pattern is surprisingly persistent across socio-demographic groups.

Authors

• Dirk Witteveen, University of Oxford

• Johan Westerman, Stockholm University, SOFI