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Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data

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Author Info

  • John M. Abowd
  • Robert H. Creecy
  • Francis Kramarz

Abstract

In this paper we provide the exact formulas for the direct least squares estimation of statistical models that include both person and firm effects. We also provide an algorithm for determining the estimable functions of the person and firm effects (the identifiable effects). The computational techniques are also directly applicable to any linear two-factor analysis of covariance with two high-dimension non-orthogonal factors. We show that the application of the exact solution does not change the substantive conclusions about the relative importance of person and firm effects in the explanation of log real compensation; however, the correlation between person and firm effects is negative, not weakly positive, in the exact solution. We also provide guidance for using the methods developed in earlier work to obtain an accurate approximation.

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File URL: ftp://ftp2.census.gov/ces/tp/tp-2002-06.pdf
File Function: First version, 2002
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Longitudinal Employer-Household Dynamics Technical Papers with number 2002-06.

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Length: 15 pages
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:cen:tpaper:2002-06

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  1. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO.
  2. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier.
  3. Abowd, John M. & Kramarz, Francis, 1999. "Econometric analyses of linked employer-employee data," Labour Economics, Elsevier, vol. 6(1), pages 53-74, March.
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