AG018854; and grants from the Alfred P. Sloan Foundation. Abowd also acknowledges partial direct support from NSF grants CNS-0627680, SES-0820349, SES-0922005, and SES-0922494, and by the U.S. Census Bureau. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau, its program sponsors or data providers. All results have been reviewed to ensure that no confidential information is disclosed. 1

There is a multitude of empirical research attempting to measure the effects of foreign direct investment, including the extent of spillovers from foreign owned to domestic firms. However, the mechanisms through which these spillovers occur have not received as much attention. One of the potential channels for spillovers of technological, marketing or managerial knowledge from foreign owned to purely domestic firms is labour mobility. Workers may benefit from such a spillover process if they manage to appropriate part of the return to the knowledge of the foreign owned firm. The ability to transfer knowledge and thereby benefit from it may depend on the skill level of an employee. This paper uses Finnish linked employer-employee panel data to analyse the extent to which employees benefit from knowledge they acquire in foreign owned firms and whether educational background makes a difference in this process. The possibility that employees may pay for the accumulation of this knowledge, as well as the potential for “reverse spillovers ” i.e. knowledge diffusion from domestic to foreign owned firms are also considered. The estimates indicate that highly educated employees earn a return to prior experience in a

In this paper, I analyze the influence of labor market conditions on wages by considering an insurance model of the employment relationship. The model allows for limited commitment on both sides of the labor contract, and has three main implications: First, wages can be correlated with both the best and the worst labor market conditions since the start of a worker’s tenure. Second, a firm may be paying different wages to workers with the same outside option, if they were hired in different periods. Such wage differentials, however, should disappear if outside opportunities change substantially. Third, the sensitivity of current wages to upward or downward changes in outside options depends on the previous dynamics of wages. I test these predictions on a unique matched employer-employee panel of male workers from Northern Italy, using the unemployment rate as a proxy for outside options. A consistent and robust set of results supports the two-sided limited commitment labor contract model, while contrasting with alternative theories of wage determination, such as spot market models or continual rebargaining. The evidence suggests that long-term contracting based on insurance considerations plays an important role in employment relationships, once the influence of market forces is taken into account.

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This paper characterizes the distribution of jobs in a relational contracting model where both employed and unemployed workers compete for jobs. In equilibrium, identical firms offer a continuous distribution of contracts, with some firms offering high-wage, high-productivity contracts and others offering low-wage, low-productivity contracts. An increase in on-the-job-search affects equilibrium contracts in two ways. First, by decreasing retention rates it leads to a deterioration in the quality of jobs. Second, by reducing the opportunity cost of employment it allows firms to enter at the bottom of the market. If employed workers receive better offers than the unemployed then free entry leads to full employment, and wage dispersion rather than unemployment incentivizes workers. 1

We exploit time variation in the degree of development of local credit markets and matched employer-employee data to assess the role of the firm as an internal credit market. In less developed local credit markets firms can offer a flatter wage-tenure profile than firms in more developed credit markets to lend implicitly to their workers or offer a steeper profile to implicitly borrow from their workers. We find that firms located in less financially developed markets offer wages that are lower at the beginning of tenure and grow faster than those offered by firms in more financially developed markets, helping firms finance their operations by raising funds from workers. Because we control for local market effects and only exploit time variation in the degree of local financial development induced by an exogenous liberalization, the effect we find is unlikely to reflect unobserved local factors that systematically affect wage tenure profiles. The size of implicit loans is larger for firms with more problematic access to bank credit and workers less likely to face credit constraints. The amount of credit generated by implicit lending within the firm is economically important and can be as large as 30 % of bank lending. Consistent with credit market imperfections opening up trade opportunities within the firm, we find that

We analyze a large, anonymous labour market in which firms motivate their workers via relational contracts. The market is frictionless and features on-the-job search, in that all acceptable vacancies are immediately filled and the employed compete with the unemployed for vacancies. While firms and workers are ex ante identical, the unique equilibrium exhibits a continuous distribution of contracts in which high wage firms have higher retention rates, more motivated workers and higher productivity. The model thus generates dispersion in wages, productivity and human resource strategies, and gives rise to endogenous job ladders. An exogenous increase in on-the-job search increases the quantity of jobs but decreases their quality; with sufficient on-the-job search there is full employment, and wage dispersion rather than unemployment motivates workers.

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own. I also thank the Harvard Business School Division of Research for support. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We study job mobility using a multivariate hazard model in discrete time. It involves two correlated random effects, one at the firm level and another at the worker level. Bayesian estimates are based on a Portuguese matched employer-employee dataset. Our results confirm the importance of unobserved heterogeneity at the individual level and at the firm level. Furthermore, the model performs better when allowing for an assortative matching mecanism in terms of employers’ and employees ’ unobservables.