High wage workers and low wage firms: negative assortative matching or limited mobility bias

Andrews M, Gill L, Schank T, Upward R (2008)


Publication Language: English

Publication Type: Journal article

Publication year: 2008

Journal

Publisher: Royal Statistical Society

Book Volume: 171

Pages Range: 673-697

Journal Issue: 3

URI: https://www.jstor.org/stable/30135090

Abstract

In the empirical literature on assortative matching using linked employer-employee data, unobserved worker quality appears to be negatively correlated with unobserved firm quality. We show that this can be caused by standard estimation error. We develop formulae that show that the estimated correlation is biased downwards if there is true positive assortative matching and when any conditioning covariates are uncorrelated with the firm and worker fixed effects. We show that this bias is bigger the fewer movers there are in the data, which is 'limited mobility bias'. This result applies to any two-way (or higher) error components model that is estimated by fixed effects methods. We apply these bias corrections to a large German linked employer-employee data set. We find that, although the biases can be considerable, they are not sufficiently large to remove the negative correlation entirely.

Authors with CRIS profile

Involved external institutions

How to cite

APA:

Andrews, M., Gill, L., Schank, T., & Upward, R. (2008). High wage workers and low wage firms: negative assortative matching or limited mobility bias. Journal of the Royal Statistical Society Series A-Statistics in Society, 171(3), 673-697.

MLA:

Andrews, Martyn, et al. "High wage workers and low wage firms: negative assortative matching or limited mobility bias." Journal of the Royal Statistical Society Series A-Statistics in Society 171.3 (2008): 673-697.

BibTeX: Download