Firm Productivity, Wages, and Sorting

Benjamin Lochner, Bastian Schulz*

*Corresponding author for this work

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review


We study the link between firm productivity and the wages that firms pay. Guided by a search-matching model with large firms, worker and firm heterogeneity, and production complementarities, we infer firm productivity by estimating firm-level production functions. Using German data, we find that the most productive firms do not pay the highest wages. Worker transitions from high- to medium-productivity firms are on average associated with wage gains. Productivity sorting, that is, the sorting of high-ability workers into high-productivity firms, is less pronounced than the sorting into high-wage firms.
Original languageEnglish
JournalJournal of Labor Economics
Pages (from-to)85-119
Number of pages35
Publication statusPublished - Jan 2024


  • Assortative Matching
  • Labor Market Sorting
  • Wage Inequality
  • Job Mobility
  • Unobserved Heterogeneity
  • Firm Productivity
  • Production Function Estimation


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