Higher firm pay passes only halfway into household spending
Workers spend roughly half the additional disposable income gained by moving to higher-paying firms, according to Norges Bank research published October 15, 2026. Norwegian data show spending responses persist for seven years.
Half spent, half saved
Sigurd Galaasen, Andreas R. Kostøl and Michael Simmons find that a 10 percent firm pay differential raises disposable income by 5.3 percent over three post-move years.
Spending rises by 2.8 percent, with both changes measured against pre-move disposable income.
The baseline marginal propensity to consume is 0.487 for singles, with a standard error of 0.071, and 0.589 for couples.
Couples' additional spending comes primarily from the worker changing employers; the spouse's response is statistically indistinguishable from zero.
Housing-related spending contributes most to the aggregate response, while hotels show the largest relative response.
Groceries and communication show no statistically detectable effects.
Income and spending responses persist for seven years.
Pay gaps exceed consumption gaps
The authors link Nets Branch Norway payment data to Statistics Norway employment records for 2006–2018.
Their baseline tracks full-time workers aged 25–60 changing firms in 2011–2015, using split-sample firm pay estimates to limit mechanical bias.
Bias-corrected firm-effect variances are 0.006 for consumption and 0.014 for earnings.
A calibrated search-and-savings model values a one-standard-deviation move up the pay ladder at a permanent 2.3 percent consumption gain, against lifetime gross pay and disposable income gains of 12.2 and 10.3 percent.
Welfare requires additional assumptions
The authors distinguish observed spending responses from welfare estimates that require additional assumptions.
They lack direct measures of non-pay amenities, despite robustness checks using proxies.
The welfare calculations depend on the calibrated model, and the conclusions are not Norges Bank's institutional views.
Source: Firm Pay and Consumption Inequality
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