Firm Productivity, Wages, and Sorting
Benjamin Lochner and
Bastian Schulz ()
Economics Working Papers from Department of Economics and Business Economics, Aarhus University
We study the link between firms’ productivity and the wages firms pay. Guided by labor market sorting theory, we infer firm productivity from estimating firm-level production functions, taking into account that worker ability and firm productivity may interact at the match level. Using German data, we find that high wages are not necessarily a reflection of high firm productivity. Observed worker transitions towards higher wages are sometimes directed downwards on the firm-productivity ladder. Worker sorting into high-productivity firms is thus less pronounced than sorting into high-wage firms. Consequently, an implication of increasing wage sorting could be decreasing allocative efficiency.
Keywords: Assortative Matching; Labor Market Sorting; Wage Inequality; Job Mobility; Unobserved Heterogeneity; Firm Productivity; Production Function Estimation (search for similar items in EconPapers)
JEL-codes: J24 J31 J40 J62 J64 L25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eff, nep-eur, nep-hrm, nep-lab and nep-ure
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Working Paper: Firm productivity, wages, and sorting (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2021-04
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