Firm Productivity, Wages, and Sorting

Benjamin Lochner and Bastian Schulz

Journal of Labor Economics, 2024, vol. 42, issue 1, 85 - 119

Abstract: We study the link between firm productivity and the wages that firms pay. Guided by a search-matching model with large firms, worker and firm heterogeneity, and production complementarities, we infer firm productivity by estimating firm-level production functions. Using German data, we find that the most productive firms do not pay the highest wages. Worker transitions from high- to medium-productivity firms are on average associated with wage gains. Productivity sorting—that is, the sorting of high-ability workers into high-productivity firms—is less pronounced than the sorting into high-wage firms.

Date: 2024
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Related works:
Working Paper: Firm Productivity, Wages, and Sorting (2021)
Working Paper: Firm productivity, wages, and sorting (2020)
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