NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

High Wage Workers Work for High Wage Firms

Katarína Borovičková, Robert Shimer

NBER Working Paper No. 24074
Issued in November 2017
NBER Program(s):Economic Fluctuations and Growth, Labor Studies

We develop a new approach to measuring the correlation between the types of matched workers and firms. Our approach accurately measures the correlation in data sets with many workers and firms, but a small number of independent observations for each. Using administrative data from Austria, we find that the correlation between worker and firm types lies between 0.4 and 0.6. We use artificial data sets with correlated worker and firm types to show that our estimator is accurate. In contrast, the Abowd, Kramarz and Margolis (1999) fixed effects estimator suggests no correlation between types in our data set. We show both theoretically and empirically that this reflects an incidental parameter problem.

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Document Object Identifier (DOI): 10.3386/w24074

 
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