Wage policy patterns at the firm level and vulnerable employees

The existence of disadvantaged groups in the labour market is a long known phenomenon and large and substantial evidence supports the hypothesis that employees who get locked into disadvantaged segments suffer significant penalties in employment opportunities, career development and earnings. The literature suggests that the risk of getting caught into a disadvantage group of the labour market is larger for more vulnerable categories of employees, e.g. younger workers or women (Kalleberg, 2000; Booth et al., 2002; Azmat et al., 2006). However, despite consistent and growing data on the negative labour market outcomes for individuals restrained to lower labour market segments, evidence on the impact of firm characteristics on segregation into less favourable segments is still poor. This paper argues that the wage policy of the firm is a significant driver of segregation into disadvantaged employment groups. Recruitment patterns, retention patterns and further career steps both in the internal and in the external labour market significantly depend on the wage policy pursued by firms. In support of the proposed thesis, the paper develops an empirical analysis on the relationship between wage policy at the firm level and wage dynamics of vulnerable employees, including younger employees, employees on temporary contracts and employees who undergo parental leaves or sickness absence. The proposed analysis is based WHIP, a longitudinal dataset including a representative sample of employment relationships in Italy, and concerns a pooled sample of large firms and their matched employees between 1990 and 2004.