ON THE USE OF FIRM FIXED EFFECTS AS A PRODUCTIVITY MEASURE FOR ANALYZING LABOR MARKET MATCHING

摘要

The present note evaluates the performance of firm fixed effects as a productivity measure when identified from wage regressions with two-way fixed effects in matched employer-employee data. This setting is frequently applied to study the matching between workers and firms. Exploiting wage and production data from a large administrative German data set, I find that the correlation between firm fixed effects (FFE) and total factor productivity is close to zero. Once TFP is used, the matching pattern is positive assortative, whereas the two-way fixed effect technique yields the opposite result.