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On The Use Of Firm Fixed Effects As A Productivity Measure For Analyzing Labor Market Matching

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  • Philipp Ehrl

Abstract

The present note evaluates the performance of firm fixed effects as a productivity measure when identified from wage regressions with two‐way fixed effects in matched employer‐employee data. This setting is frequently applied to study the matching between workers and firms. Exploiting wage and production data from a large administrative German data set, I find that the correlation between firm fixed effects (FFE) and total factor productivity is close to zero. Once TFP is used, the matching pattern is positive assortative, whereas the two‐way fixed effect technique yields the opposite result.

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  • Philipp Ehrl, 2019. "On The Use Of Firm Fixed Effects As A Productivity Measure For Analyzing Labor Market Matching," Bulletin of Economic Research, Wiley Blackwell, vol. 71(2), pages 195-208, April.
    • Handle: RePEc:bla:buecrs:v:71:y:2019:i:2:p:195-208
    DOI: 10.1111/boer.12173
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