Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
A Users' Guide to Uncovering Worker and Firm Effects: The ABC of AKM
Journal of Economic Perspectives
(pp. 195–214)
(Complimentary)
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.Citation
Bonhomme, Stéphane, Thibaut Lamadon, and Elena Manresa. 2026. "A Users' Guide to Uncovering Worker and Firm Effects: The ABC of AKM." Journal of Economic Perspectives 40 (2): 195–214. DOI: 10.1257/jep.20231372Additional Materials
JEL Classification
- C51 Model Construction and Estimation
- J01 Labor Economics: General
- J22 Time Allocation and Labor Supply
- J31 Wage Level and Structure; Wage Differentials
- J62 Job, Occupational, and Intergenerational Mobility; Promotion
- L25 Firm Performance: Size, Diversification, and Scope
- M52 Personnel Economics: Compensation and Compensation Methods and Their Effects