We study the time-series properties of firm effects in the two-way fixed effects model popularized by Abowd, Kramarz, and Margolis (1999) (AKM) using two approaches. The first—the rolling AKM approach (R-AKM)—estimates AKM models separately for successive two-year intervals. The second—the time-varying AKM approach (TV-AKM)—is an extension of the original AKM model that allows for unrestricted interactions of year and firm indicators. We apply to both approaches the leave-out methodology of Kline, Saggio and Sølvsten (2020) to correct for biases in the estimated variance components. Using administrative wage records from Washington State, we find, first, that firm effects for hourly wage rates are highly persistent with an autocorrelation coefficient between firm effects in 2002 and 2014 of 0.74. Second, the R-AKM approach reveals cyclicality in firm effects and worker-firm sorting. During the Great Recession the variability in firm effects increased, while the degree of worker-firm sorting decreased. Third, misspecification of standard AKM models resulting from restricting firm effects to be fixed over time appears to be minimal.
Marta Lachowska
First name
Marta
Last name
Lachowska
Abstract
Previous Versions
<p><a href="https://dataspace.princeton.edu/bitstream/88435/dsp01ws859j538/7/629_previous_version_2019-10.pdf">Do firm effect drift? Evidence from Washington Administration Data, October 2019</a></p>
Year of Publication
2021
Number
629
Date Published
07/2021
Publication Language
eng
Mas, A., Lachowska, M., Saggio, R., & Woodbury, S. (2021). Do Firm Effects Drift? Workplace Heterogeneity and Wage Inequality in Washington. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01ws859j538 (Original work published July 2021)
Working Papers
Keywords
Abstract
We estimate the magnitudes of reduced earnings, work hours, and wage rates of workers displaced during the Great Recession using linked employer-employee panel data from Washington State. Displaced workers’ earnings losses occurred mainly because hourly wage rates dropped at the time of displacement and recovered sluggishly. Lost employer-specific premiums explain only 17 percent of these losses. Fully 70 percent of displaced workers moved to employers paying the same or higher wage premiums than the displacing employers, but these workers nevertheless suffered substantial wage rate losses. Loss of valuable specific worker employer
matches explain more than half of the wage losses.
Year of Publication
2019
Number
631
Date Published
10/2019
Publication Language
eng
Citation Key
11446
Mas, A., Lachowska, M., & Woodbury, S. (2019). Sources of Displaced Workers’ Long-Term Earnings Losses. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01n870zt699 (Original work published October 2019)
Working Papers