Andrews, Martyn J. Gill, Leonard Schank, Thorsten Upward, Richard
Year of Publication:
Discussion Paper series, Forschungsinstitut zur Zukunft der Arbeit 6662
Positive assortative matching implies that high productivity workers and firms match together. However, there is almost no evidence of a positive correlation between the worker and firm contributions in two-way fixed-effects wage equations. This could be the result of a bias caused by standard estimation error. Using German social security records we show that the effect of this bias is substantial in samples with limited inter-firm movement. The correlation between worker and firm contributions to wage equations is unambiguously positive.
linked employer-employee panel data fixed effects limited mobility bias