How Much Should we Trust Estimates of Firm Effects and Worker Sorting? (with Stéphane Bonhomme, Thibaut Lamadon, Elena Manresa, Magne Mogstad and Bradley Setzler) (JOLE)
Many studies use matched employer-employee data to estimate a statistical model of earnings determination where log-earnings are expressed as the sum of worker effects, firm effects, covariates, and idiosyncratic error terms. Estimates based on this model have produced two influential yet controversial conclusions. First, firm effects typically explain around 20% of the variance of log-earnings, pointing to the importance of firm-specific wage-setting for earnings inequality. Second, the correlation between firm and worker effects is often small and sometimes negative, indicating little if any sorting of high-wage workers to high-paying firms. The objective of this paper is to assess the sensitivity of these conclusions to the biases that arise because of limited mobility of workers across firms. We use employer-employee data from the US and several European countries while taking advantage of both fixed-effects and random-effects methods for bias-correction. We find that limited mobility bias is severe and that bias-correction is important. Once one corrects for limited mobility bias, firm effects matter less for earnings inequality and worker sorting becomes always positive and typically strong.
Note: For code cf. here.
The Role of Workers in Knowledge Diffusion Across Firms (with Anders Akerman)
We analyze the effect of labor mobility and innovation on productivity growth. With event-study analysis based on exogenous worker deaths and shift-share international trade shocks, we show that both the extent and direction of worker mobility affect firm productivity. We develop a multi-worker-firm framework with random search and on-the-job mobility to estimate the relative contribution of mobility and R&D to growth. Estimated on a balanced growth path using Swedish microeconomic data, we find that over 60% of output growth can be attributed to worker mobility. Our results suggest that a slowdown of worker mobility can depress aggregate economic growth.
The Two Faces of Worker Specialization (with Zsófia Barany)
We study how worker specialization—the distance between a worker’s skill set and those prevalent in the labor market—shapes employment outcomes. Using US and French data, we first document that specialized jobs are characterized by asymmetric skill profiles and a scarcity of nearby employment opportunities. We incorporate these features into a random search model with multidimensional skills, mismatch penalties and skill complementarity. We show that specialization lowers job-finding rates due to a lack of suitable jobs, but raises re-employment wages via improved productivity. Empirical evidence from displaced workers in both countries confirms these predictions. Our findings reconcile competing views in the literature by showing that specialization entails trade-offs and is neither uniformly beneficial nor harmful.
Life-Cycle Wage Growth and Firm Productivity in Developed and Developing Economies (with Juan Munoz)
Life-cycle wage growth varies significantly across countries. We examine the role of the local distribution of firm productivity in shaping life-cycle wages by introducing a random search model that disentangles the effects of firm productivity distribution, on-the-job learning, and labor market frictions. Estimates of the model for Brazil, Colombia, and the United States suggest that the shape and scale of the firm-type distribution are key factors in explaining life-cycle wage growth. Counterfactual simulations suggest that equating the firm-type distribution in Brazil and Colombia to that of the United States would substantially reduce the cross-country gap in workers’ life-cycle wage trajectories.
Gender Differences in Amenities, Wages, and Firms (with Yana Gallen, Nabanita Datta Gupta and Kristian Stamp Hedeager)
Despite decades of rising female human-capital investment, a sizable gender pay gap remains. We ask how much accounting for the value of job amenities---especially temporal and spatial flexibility---reduces the gender gap in compensation. We merge a new survey that measures on-call duties, evening work, schedule rigidity, and hours with matched employer-employee administrative records. Around childbirth, mothers switch to jobs with set schedules, shorter hours, and no on-call or evening requirements, moving toward lower-pay firms and firms less preferred by men according to revealed-preference firm rankings. Controlling for these amenities explains almost all
post-birth firm sorting. To causally estimate the value of amenities to workers, we run an incentivized discrete-choice experiment: around 1,000 workers choose between hypothetical jobs that trade off wages against the same amenities. We find that women demand wage premia twice as large as men for avoiding on-call work and the ability to vary work time for family reasons. Women also place substantially more value on working near home and from home and on avoiding evening work and time pressure. Adding these valuations to monetary earnings shrinks the gender gap in total compensation to 13 percentage points, almost forty percent smaller than the baseline earnings gap.
Wage Bargaining and Wage Posting Firms (with Jean-Marc Robin)
This paper characterizes wage bargaining and wage posting firms. Using a theoretically derived likelihood-based estimation and clustering algorithm, we classify firms into either wage-bargaining or wage-posting types. Empirically, we use survey data from Germany and administrative data from Austria and find strikingly similar characterizations of both firm types. We find that wage-bargaining firms, which account for about 26% of Austrian firms and 24% of German firms, exhibit higher productivity and within-firm wage variation. The model accounts for downward wage transitions in job-to-job moves as the result of inefficient mobility, wherein workers forgo current wages at posting firms in exchange for prospective gains at bargaining firms, generating output losses of approximately 2 %. Additionally, we show that an increase of 10 percentage points in the share of high-productivity bargaining firms raises average wages by roughly 1 %, reflecting the upward wage pressure exerted by such firms.
Using three European matched employer-employee data sets, I show that workers experiencing high positive or negative changes in wages subsequently have a high propensity of job separation. In all three data sets, a change in wages of 10 percentage points above or below the median coincides with roughly 30% higher odds of job separation. The pattern is more pronounced among low experience workers. Theoretically, I rationalize the empirical finding as a result of information and labor market frictions in a random search model with two-sided heterogeneity and symmetric learning about worker ability. In the framework, workers with low experience have a high initial volatility of wage changes and move between firms to enjoy productivity benefits. I allow for additional channels of wage growth through contract renegotiation and dynamic match productivity and let firms differ in the volatility of production shocks. In the model, workers can partially reduce their wage exposure to productivity shocks by accumulating wage negotiation capital such that the volatility of wage changes falls endogenously on the job ladder. An uneven distribution of volatile firms along the job ladder further increases wage stability with experience. I thereby show that the job ladder does not only determine worker's level of wages but can also account for part of its variability.
New version joined with Lewin Nolden coming soon!
Worker Specialization and the Aggregate Economy
How does the quality of job matches affect the aggregate economy? In this paper, we study how specialization, i.e. the growing adaptation of workers to their job, can amplify business cycles. On the one hand, specialization can increase output and job stability when aggregate productivity is high. On the other hand, worker specialization can decrease the odds of job finding after displacement when aggregate productivity is low. To quantify their impact, we solve and estimate a random search model with multidimensional skills and aggregate shocks using neural networks. We estimate the model on French and US data. Differently from the literature, our estimation procedure with neural networks allows fitting of any empirical moment vector as a plug-in, facilitating cross-country comparisons about the importance of specialization.
Inheritance taxes and family firms in Germany (with Charlotte Bartels, Theresa Buehrle, Gedeão Locks and Duncan Roth)
While tax avoidance has been identified as the primary behavioral response to inheritance and gift taxation, relatively few is known about the potentially negative externalities of inheritance and gift tax avoidance on production, employment and output of firms being transferred from one generation to the next. In this paper, we study the effect of business gift tax avoidance on firm growth and employment in Germany. Since 2009, the German inheritance and gift tax law creates an incentive to downsize before a firm transfer. We estimate excess separations before ownership transfer of family firms to quantify the efficiency cost of inheritance and gift tax avoidance in Germany, where family firms represent the backbone of the economy. We find that affected firms cut a small but significant amount of employment before transfer.
Ongoing Projects:
Bicycle Paths and Wages (with Elena Mattana). Recipient of AUFF NOVA grant.
Acqui-Hires (with Jingnan Liu)
ANR (2024) grant Project FIRMSIZE (with Clara Santamaria)