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How Much Should we Trust Estimates of Firm Effects and Worker Sorting?

Author

Listed:
  • Stephane Bonhomme

    (University of Chicago)

  • Kerstin Holzheu

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Thibaut Lamadon

    (University of Chicago, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research, IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies)

  • Elena Manresa

    (NYU - New York University [New York] - NYU - NYU System)

  • Magne Mogstad

    (University of Chicago, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research, IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies)

  • Bradley Setzler

    (Penn State - Pennsylvania State University - Penn State System)

Abstract

Many studies use matched employer-employee data to estimate a statistical model of earnings determination with worker and firm fixed effects. Estimates based on this model have produced influential yet controversial conclusions. 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 biascorrection. We find that limited mobility bias is severe and that bias-correction is important.

Suggested Citation

  • Stephane Bonhomme & Kerstin Holzheu & Thibaut Lamadon & Elena Manresa & Magne Mogstad & Bradley Setzler, 2023. "How Much Should we Trust Estimates of Firm Effects and Worker Sorting?," SciencePo Working papers Main hal-03882713, HAL.
  • Handle: RePEc:hal:spmain:hal-03882713
    DOI: 10.1086/720009
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03882713
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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

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