Title: Firms and wages
Published: 19 Sep 2023
Page Range: 53–57
In: Elgar Encyclopedia of Labour Studies
Edited by Tor Eriksson
In the standard simple competitive labour market model, wage differentials between individuals are only due to differences in employees’ skills. The employer does not matter. Although many economists felt uncomfortable with this, the large boost to progress was made with the introduction of the so called AKM model, which allows researchers with access to linked employer-employee panel data sets to measure the relative importance of worker and firm fixed effects in wages. Both have turned out to be important. The original AKM article (1999) has spawned a large literature aiming at improvements in econometric methods and more recently applications to analyses of wage inequality, gender wage gaps, and many more questions.
Keywords: Wage differentials; Firm fixed effects; Worker fixed effects; Linked employer-employee data; Two-way fixed effects estimation