How Much Should We Trust Estimates of Firm Effects and Worker Sorting?

Stéphane Bonhomme, Kerstin Holzheu, Thibaut Lamadon, Elena Manresa, Magne Mogstad, Bradley Setzler

    Research output: Contribution to journalArticlepeer-review


    Many studies use matched employer-employee data to estimate a statistical model of earnings determination with worker and firm fixed effects. Estimates based on this model have produced influen-tial yet controversial conclusions. The objective of this paper is to assess the sensitivity of these conclusions to the biases that arise because of limited mobility of workers across firms. We use employer-employee data from the United States and several European countries while taking advantage of both fixed effects and random effects meth-ods for bias correction. We find that limited mobility bias is severe and that bias correction is important.

    Original languageEnglish (US)
    Pages (from-to)291-322
    Number of pages32
    JournalJournal of Labor Economics
    Issue number2
    StatePublished - Apr 1 2023

    ASJC Scopus subject areas

    • Industrial relations
    • Economics and Econometrics


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