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High wage workers and low wage firms : negative assortative matching or statistical artefact?

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  • Andrews, Martyn J.
  • Gill, Len
  • Schank, Thorsten
  • Upward, Richard

Abstract

In the empirical literature on the estimation of firm and worker heterogeneity using linked employer-employee data, unobserved worker quality appears to be negatively correlated with unobserved firm quality. We investigate the possibility that this is simply caused by standard estimation error and develop formulae that show that the estimated correlation is biased downwards if there is true positive assortative matching and when any conditioning covariates are uncorrelated with the firm and worker fixed effects. This result applies to any two-way (or higher) error-components model estimated by fixed-effects methods. We apply these bias corrections to a large German linked employer-employee dataset. We find that although the biases can be considerable, they are not sufficiently large to remove the negative correlation entirely. -- Auf der Basis von zusammengefügten Betriebs- und Personendaten findet sich in der empirischen Literatur eine negative Korrelation zwischen den unbeobachteten Eigenschaften von Beschäftigten und denen von Betrieben. Wir zeigen formal, dass die geschätzte Korrelation nach unten verzerrt ist, sofern ein positives Matching existiert und sofern die übrigen Kovariate mit den Betriebs- und Beschäftigten Fixed Effects unkorreliert sind. Dieses Ergebnis kann allgemein auf jedes mehrdimensionale Fixed Effects Modell übertragen werden. Für kombinierte Firmen-Beschäftigtendaten aus Deutschland finden wir eine beträchtliche Verzerrung in der geschätzten Korrelation. Diese ist jedoch nicht groß genug, um die ermittelte negative Korrelation vollständig erklären zu können.

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Bibliographic Info

Paper provided by Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics in its series Discussion Papers with number 42.

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Date of creation: 2006
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Handle: RePEc:zbw:faulre:42

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Web page: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english-version/
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Keywords: linked employee-employer panel data; biases; fixed-effects;

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References

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  1. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
  2. Goux, Dominique & Maurin, Eric, 1999. "Persistence of Interindustry Wage Differentials: A Reexamination Using Matched Worker-Firm Panel Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(3), pages 492-533, July.
  3. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers, Center for Economic Studies, U.S. Census Bureau 2002-06, Center for Economic Studies, U.S. Census Bureau.
  4. John M. Abowd (corresponding) & Francis Kramarz, 2004. "Are Good Workers Employed by Good Firms? A Simple Test of Positive Assortative Matching Models," Econometric Society 2004 North American Winter Meetings, Econometric Society 385, Econometric Society.
  5. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier.
  6. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High Wage Workers and High Wage Firms," NBER Working Papers 4917, National Bureau of Economic Research, Inc.
  7. Max Gruetter & Rafael Lalive, . "The Importance of Firms in Wage Determination," IEW - Working Papers 207, Institute for Empirical Research in Economics - University of Zurich.
  8. Andrews, Martyn & Schank, Thorsten & Upward, Richard, 2004. "Practical estimation methods for linked employer-employee data," IAB Discussion Paper 200403, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  9. Alda, Holger & Bender, Stefan & Gartner, Hermann, 2005. "The linked employer-employee dataset of the IAB (LIAB)," IAB Discussion Paper 200506, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  10. Martyn Andrews & Thorsten Schank & Richard Upward, 2006. "Practical fixed-effects estimation methods for the three-way error-components model," Stata Journal, StataCorp LP, StataCorp LP, vol. 6(4), pages 461-481, December.
  11. Bender, Stefan & Haas, Anette & Klose, Christoph, 2000. "IAB Employment Subsample 1975-1995 Opportunities for Analysis Provided by the Anonymised Subsample," IZA Discussion Papers 117, Institute for the Study of Labor (IZA).
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Cited by:
  1. Jahn, Elke J. & Wagner, Thomas, 2006. "Base Period, Qualifying Period and the Equilibrium Rate of Unemployment," Discussion Papers 43, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  2. Simon D. Woodcock, 2005. "Heterogeneity and Learning in Labor Markets," Labor and Demography, EconWPA 0511012, EconWPA.
  3. Simon Clark, 2007. "Matching and Sorting when Like Attracts Like," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 171, Edinburgh School of Economics, University of Edinburgh.
  4. Hirsch, Boris, 2007. "Joan Robinson Meets Harold Hotelling : A Dyopsonistic Explanation of the Gender Pay Gap," Discussion Papers 51, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  5. Simon D. Woodcock, 2007. "Match Effects," Discussion Papers dp07-13, Department of Economics, Simon Fraser University.
  6. Upward, Richard & Schank, Thorsten & J. Andrews, Martyn, 2005. "Practical estimation methods for linked employer-employee data," Discussion Papers 29 [rev.], Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  7. repec:ese:iserwp:2009-12 is not listed on IDEAS
  8. Navon, Guy & Tojerow, Ilan, 2006. "The Effects of Rent-Sharing on the Gender Wage Gap in the Israeli Manufacturing Sector," IZA Discussion Papers 2361, Institute for the Study of Labor (IZA).

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