Discussion Paper Details

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Title: Firm Heterogeneity in Skill Returns

Author(s): Michael Boehm, Khalil Esmkhani and Giovanni Gallipoli

Publication Date: November 2020

Keyword(s): Firm Heterogeneity, inequality, Skill Returns, sorting and wages

Programme Area(s): Labour Economics and Macroeconomics and Growth

Abstract: This paper presents new evidence on worker-firm complementarities. We combine matched employer-employee data with direct measures of workers' cognitive and noncognitive skills, and propose an empirical approach that separately identifies the firm-level return for each attribute. We find that similar skills command different returns across employers and that workers' sorting into firms depends on returns to both attributes. We derive theoretical restrictions that characterize many-to-one matching in employer-employee data, linking within-firm skill dispersion to between-firm differences in average skills. Estimates support these restrictions. Firm heterogeneity in skill returns raises both the average level and dispersion of earnings.

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Bibliographic Reference

Boehm, M, Esmkhani, K and Gallipoli, G. 2020. 'Firm Heterogeneity in Skill Returns'. London, Centre for Economic Policy Research.