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A Users' Guide to Uncovering Worker and Firm Effects: The ABC of AKM

Author

Listed:
  • Stéphane Bonhomme
  • Thibaut Lamadon
  • Elena Manresa

Abstract

The AKM model introduced by Abowd, Kramarz, and Margolis (1999) has become a workhorse to study worker and firm heterogeneity, and to understand the sources of wage dispersion in the labor market using linked employer-employee data. In this article, we introduce the model and estimator, discuss some best practices for estimation, and review some empirical findings on the role of worker and firm heterogeneity in wage dispersion. While the AKM methodology has proven useful to analyze a host of questions in a variety of settings within labor economics and beyond, we also point to the need for methodological developments.

Suggested Citation

  • Stéphane Bonhomme & Thibaut Lamadon & Elena Manresa, 2026. "A Users' Guide to Uncovering Worker and Firm Effects: The ABC of AKM," Journal of Economic Perspectives, American Economic Association, vol. 40(2), pages 195-214, Spring.
    • Handle: RePEc:aea:jecper:v:40:y:2026:i:2:p:195-214
    DOI: 10.1257/jep.20231372
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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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