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Firm Heterogeneity in Skill Returns

Author

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  • Böhm, Michael Johannes

    (TU Dortmund)

  • Esmkhani, Khalil

    (Simon Fraser University)

  • Gallipoli, Giovanni

    (University of British Columbia, Vancouver)

Abstract

We quantify firm heterogeneity in skill returns and present direct evidence of worker–firm complementarities. Within a model of firms' demand for cognitive and noncognitive attributes we show that identification depends on the availability of skill measures. Linking administrative data to test scores we document worker sorting and convex earnings–skill relationships. We find that: (1) Both skills' returns vary substantially across employers and correlate weakly within-firm. (2) Workers with large endowments of a skill populate firms with higher returns to it. Sorting intensifies with the cross-sectional dispersion of returns. (3) Complementarities and sorting significantly influence the earnings distribution.

Suggested Citation

  • Böhm, Michael Johannes & Esmkhani, Khalil & Gallipoli, Giovanni, 2023. "Firm Heterogeneity in Skill Returns," IZA Discussion Papers 16644, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16644
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    References listed on IDEAS

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    1. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    2. Paul Beaudry & David A. Green & Benjamin M. Sand, 2016. "The Great Reversal in the Demand for Skill and Cognitive Tasks," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 199-247.
    3. Stéphane Bonhomme & Elena Manresa, 2015. "Grouped Patterns of Heterogeneity in Panel Data," Econometrica, Econometric Society, vol. 83(3), pages 1147-1184, May.
    4. Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," American Economic Review, American Economic Association, vol. 107(4), pages 1104-1135, April.
    5. Thibaut Lamadon & Magne Mogstad & Bradley Setzler, 2022. "Imperfect Competition, Compensating Differentials, and Rent Sharing in the US Labor Market," American Economic Review, American Economic Association, vol. 112(1), pages 169-212, January.
    6. Jan Eeckhout & Philipp Kircher, 2011. "Identifying Sorting--In Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 872-906.
    7. Thibaut Lamadon & Elena Manresa & Stephane Bonhomme, 2016. "Discretizing Unobserved Heterogeneity," 2016 Meeting Papers 1536, Society for Economic Dynamics.
    8. James J. Heckman & Jora Stixrud & Sergio Urzua, 2006. "The Effects of Cognitive and Noncognitive Abilities on Labor Market Outcomes and Social Behavior," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 411-482, July.
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    11. Stéphane Bonhomme & Thibaut Lamadon & Elena Manresa, 2019. "A Distributional Framework for Matched Employer Employee Data," Econometrica, Econometric Society, vol. 87(3), pages 699-739, May.
    12. M. J. Andrews & L. Gill & T. Schank & R. Upward, 2008. "High wage workers and low wage firms: negative assortative matching or limited mobility bias?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 673-697, June.
    13. repec:hal:spmain:info:hdl:2441/2gm7u1h28o97arriihp43sr90l is not listed on IDEAS
    14. 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.
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    Cited by:

    1. Nordström Skans, Oskar & Choné, Philippe & Kramarz, Francis, 2022. "When workers’ skills become unbundled: Some empirical consequences for sorting and wages," Working Paper Series 2022:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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    More about this item

    Keywords

    firm heterogeneity; skill return; sorting; earnings distribution;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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