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Skill-Biased Firms and the Distribution of Labor Market Returns


  • Giovanni Gallipoli


  • Khalil Esmkhani


  • Michael Böhm

    (Vancouver School of Economics and Univer)


How much do firms contribute to variation in labor market returns? To address this question we begin by documenting a historical episode that saw the economy-wide return to cognitive skills in Sweden surge in the 1990s and decline after 2000. Both upswing and reversal can be accounted for by between-firm variation. Motivated by this observation we develop and estimate an equilibrium model of skills demand with multi-dimensional firm heterogeneity. The model delivers sorting due to firm-specific skill-biases, which we estimate using rich population data on worker abilities. We find that: (i) the return to cognitive skills varies considerably across firms; (ii) more able workers sort into firms with higher returns; (iii) firm-specific wage premia, independent of workers' skills, exist even after controlling for worker sorting. A numerical implementation of the model shows that firm-level heterogeneity accounts for more than 2/3 of aggregate wage variation, with most of the impact due to skill-independent wage premia. However, firm-level skill-biases and non-pecuniary returns play a critical role for workers' sorting and for the evolution of the economy-wide return to skills.

Suggested Citation

  • Giovanni Gallipoli & Khalil Esmkhani & Michael Böhm, 2019. "Skill-Biased Firms and the Distribution of Labor Market Returns," 2019 Meeting Papers 1199, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:1199

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    References listed on IDEAS

    1. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    2. Gonzalo Castex & Evgenia Kogan Dechter, 2014. "The Changing Roles of Education and Ability in Wage Determination," Journal of Labor Economics, University of Chicago Press, vol. 32(4), pages 685-710.
    3. Isaac Sorkin, 2018. "Ranking Firms Using Revealed Preference," The Quarterly Journal of Economics, Oxford University Press, vol. 133(3), pages 1331-1393.
    4. Arindrajit Dube & Jeff Jacobs & Suresh Naidu & Siddharth Suri, 2018. "Monopsony in Online Labor Markets," NBER Working Papers 24416, National Bureau of Economic Research, Inc.
    5. Ashworth, Jared & Ransom, Tyler, 2019. "Has the college wage premium continued to rise? Evidence from multiple U.S. surveys," Economics of Education Review, Elsevier, vol. 69(C), pages 149-154.
    6. Erik Lindqvist & Roine Vestman, 2011. "The Labor Market Returns to Cognitive and Noncognitive Ability: Evidence from the Swedish Enlistment," American Economic Journal: Applied Economics, American Economic Association, vol. 3(1), pages 101-128, January.
    7. Hethey, Tanja & Schmieder, Johannes F., 2010. "Using worker flows in the analysis of establishment turnover : evidence from German administrative data," FDZ Methodenreport 201006_en, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    8. Joao Alfredo Galindo da Fonseca & Giovanni Gallipoli & Yaniv Yedid-Levi, 2017. "Match Quality, Contractual Sorting and Wage Cyclicality," Working Papers 2017-076, Human Capital and Economic Opportunity Working Group.
    9. Böhm, Michael & Metzger, Daniel & Strömberg, Per Johan, 2018. ""Since you're so rich, you must be really smart": Talent and the Finance Wage Premium," CEPR Discussion Papers 12711, C.E.P.R. Discussion Papers.
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