Firm Productivity, Wages, and Sorting

Abstract

"We study the link between firm productivity and the wages that firms pay. Guided by a search-matching model with large firms, worker and firm heterogeneity, and production complementarities, we infer firm productivity by estimating firm-level production functions. Using German data, we find that the most productive firms do not pay the highest wages. Worker transitions from high- to medium-productivity firms are on average associated with wage gains. Productivity sorting, that is, the sorting of high-ability workers into high-productivity firms, is less pronounced than the sorting into high-wage firms." (Author's abstract, IAB-Doku, © University of Chicago Press) ((en))

Cite article

Lochner, B. & Schulz, B. (2024): Firm Productivity, Wages, and Sorting. In: Journal of labor economics, Vol. 42, No. 1, p. 85-119. DOI:10.1086/722564