Chapter 4: Wage determination in firms

This chapter will conclude our analysis of wage determination in firms. We will follow the recommended strategy in four steps, as outlined above. The questions can be answered using SPSS Mixed or Stata Xtmixed.

Describing the data

Let us start with the wage determination example for which we have already estimated OLS regression models. The first lines of the file (SPSS version) are shown below:

Figure 4.1.

The first variable is the firm identifier and the second the employee identification code. Note that the file is sorted by the firm identifier, so that the employees are nested within the firms. There are five employees in the first firm, three in the second, and four in the third. The rest of the variables should be familiar, except for the firm level variables: private, size and profit. A distinction is drawn between private sector firms (private=1) and public sector firms (organizations) (private=0). The second variable is firm size measured by number of employees, and the final firm level variable is a measure of profit per employee measured in the same years as the other variables are measured.

Before we start, describe the variables by using Describe in SPSS or Summarize in Stata.

SPSS solution:

Figure 4.2.

Stata solution:

Figure 4.3.

We have information for all employees for most variables, with three exceptions. Wage is only reported for 3,759 employees, EGP classes for 4,042, and profit for only 1,143 firms. The reason for the latter is that profit is not available for non-profit organizations such as the public administration.

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