Reaching for the Stars: Is Matching of High Ability Individuals and High Wage Firms Rent Creating?

Abstract

Employees in elite firms are well compensated compared to industry standards, and the important questions for strategic management of human capital are whether there is a rent from matching high ability individuals and to high wage firms, and whether firms get a share of this rent. We examine whether firm performance is related to positive assortative matching of high ability managers and workers to high wage firms. We develop a synthesis of human capital and efficiency wage theories and analyze the matching of manager and worker abilities to efficiency wages in a sample of 3,033 Danish small and medium-sized firms. Our findings support an association between financial performance and positive assortative matching of managers with firms while the evidence is not in favor of positive assortative matching of workers and firms.

Keywords: Strategic human capital, efficiency wages, matched employer-employee data

JEL Classification: C23, J41, M12, M51