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Firm Productivity, Wages, and Sorting

Year: 2022

Type: article

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.

Source: Journal of Labor Economics

DOI: 10.1086/722564

Authors: Benjamin Lochner, Bastian Schulz

Institutions: Friedrich-Alexander-Universität Erlangen-Nürnberg, IZA - Institute of Labor Economics, Institut für Arbeitsmarkt und Berufsforschung, Aarhus University

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: gold

Funder: Aarhus Universitets Forskningsfond