DP15480 Firm Heterogeneity in Skill Returns

Author(s):	Michael Boehm, Khalil Esmkhani, Giovanni Gallipoli
Publication Date:	November 2020
Keyword(s):	Firm Heterogeneity, inequality, Skill Returns, sorting, wages
JEL(s):	D30, E23, J23, J24
Programme Areas:	Labour Economics, Macroeconomics and Growth
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15480

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.