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High Wage Workers Match with High Wage Firms: Clear Evidence of the Effects of Limited Mobility Bias

Author

Listed:
  • Andrews, Martyn J.

    (University of Manchester)

  • Gill, Leonard

    (University of Manchester)

  • Schank, Thorsten

    (University of Mainz)

  • Upward, Richard

    (University of Nottingham)

Abstract

Positive assortative matching implies that high productivity workers and firms match together. However, there is almost no evidence of a positive correlation between the worker and firm contributions in two-way fixed-effects wage equations. This could be the result of a bias caused by standard estimation error. Using German social security records we show that the effect of this bias is substantial in samples with limited inter-firm movement. The correlation between worker and firm contributions to wage equations is unambiguously positive.

Suggested Citation

  • Andrews, Martyn J. & Gill, Leonard & Schank, Thorsten & Upward, Richard, 2012. "High Wage Workers Match with High Wage Firms: Clear Evidence of the Effects of Limited Mobility Bias," IZA Discussion Papers 6662, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6662
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    fixed effects; linked employer-employee panel data; limited mobility bias;
    All these keywords.

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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