A Users' Guide to Uncovering Worker and Firm Effects: The ABC of AKM

Stéphane Bonhomme, Thibaut Lamadon and Elena Manresa

Journal of Economic Perspectives, 2026, vol. 40, issue 2, 195-214

Abstract: The AKM model introduced by Abowd, Kramarz, and Margolis (1999) has become a workhorse to study worker and firm heterogeneity, and to understand the sources of wage dispersion in the labor market using linked employer-employee data. In this article, we introduce the model and estimator, discuss some best practices for estimation, and review some empirical findings on the role of worker and firm heterogeneity in wage dispersion. While the AKM methodology has proven useful to analyze a host of questions in a variety of settings within labor economics and beyond, we also point to the need for methodological developments.

JEL-codes: C51 J01 J22 J31 J62 L25 M52 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/jep.20231372

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