High Wage Workers Work for High Wage Firms

67 Pages Posted: 6 Dec 2017 Last revised: 13 Apr 2023

See all articles by Katarína Borovičková

Katarína Borovičková

New York University (NYU) - Department of Economics

Robert Shimer

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2017

Abstract

We develop a new approach to measuring the correlation between the types of matched workers and firms. Our approach accurately measures the correlation in data sets with many workers and firms, but a small number of independent observations for each. Using administrative data from Austria, we find that the correlation between worker and firm types lies between 0.4 and 0.6. We use artificial data sets with correlated worker and firm types to show that our estimator is accurate. In contrast, the Abowd, Kramarz and Margolis (1999) fixed effects estimator suggests no correlation between types in our data set. We show both theoretically and empirically that this reflects an incidental parameter problem.

Suggested Citation

Borovičková, Katarína and Shimer, Robert J., High Wage Workers Work for High Wage Firms (November 2017). NBER Working Paper No. w24074, Available at SSRN: https://ssrn.com/abstract=3082235

Katarína Borovičková (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Robert J. Shimer

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-9015 (Phone)
773-702-8490 (Fax)

HOME PAGE: http://home.uchicago.edu/~shimer/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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