Firm Heterogeneity in Skill Returns

Michael J. Böhm, Khalil Esmkhani and Giovanni Gallipoli

Journal of Labor Economics, 2025, vol. 43, issue 3, 695 - 723

Abstract: We quantify firm heterogeneity in skill returns and present direct evidence of worker-firm complementarities. Within a model of firms’ demand for cognitive and noncognitive attributes, we show that identification depends on the availability of skill measures. Linking administrative data to test scores, we document worker sorting and convex earnings-skill relationships. We find that (1) both skills’ returns vary substantially across employers and correlate weakly within firms; (2) workers with large endowments of a skill populate firms with higher returns to it, and sorting intensifies with the cross-sectional dispersion of returns; and (3) complementarities and sorting significantly influence the earnings distribution.

Date: 2025
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