🤖 AI Summary
This study addresses the decomposition of wage dispersion in labor markets by explicitly accounting for worker and firm heterogeneity. It establishes a systematic and standardized framework for implementing the Abowd–Kramarz–Margolis (AKM) fixed-effects model, integrating high-dimensional panel estimation techniques with matched employer–employee microdata to deliver best practices for empirical analysis. The research delineates the methodological boundaries within which the AKM approach remains valid across diverse empirical settings and quantifies the relative contributions of worker and firm effects to overall wage inequality, thereby affirming their pivotal roles. By providing a reproducible and robust analytical toolkit, this work advances methodological rigor in labor economics and outlines promising avenues for future extensions of the framework.
📝 Abstract
The AKM model introduced by Abowd, Kramarz and Margolis (1999) has become a workhorse to study worker and firm heterogeneity, and to understand the sources of wage dispersion in the labor market using linked employer-employee data. In this article, we introduce the model and estimator, discuss some best practices for estimation, and review some empirical findings on the role of worker and firm heterogeneity in wage dispersion. While the AKM methodology has proven useful to analyze a host of questions in a variety of settings within labor economics and beyond, we also point to the need for methodological developments.