Do Workers Move Up the Firm Productivity Job Ladder

In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in reallocating workers from less productive to more productive firms in the U.S. economy. We present evidence that workers move up the firm productivity ladder, and that job-to-job moves of workers explain almost all of the dierential employment growth rates of high and low productivity firms. Movements up the firm productivity ladder are procyclical but there has also been a downward trend in movements up the ladder. The latter suggests that job-to-job flows are contributing less to productivity growth and potentially reflects a decline in economic mobility in the U.S. Integrating these new findings with evidence on job ladders by firm size and wage, we observe that job-to-job moves reallocate workers up the firm productivity and the firm pay distribution, but not up the size distribution. This suggests to us that the tight relationship between firm productivity, wages, and size that is central to many macro models does not hold in real world data. To resolve this discrepancy, we investigate the nature of the joint distribution of firm wages, firm size and firm productivity. We find evidence that firm productivity and firm wages are much more closely related than firm productivity and firm size, and that the firm productivity/size relationship varies systematically across industries. We hypothesize that the weak relationship we observe between size and productivity in many industries is due to market segmentation in those industries.