Using a matched firm-worker dataset, we show both theoretically and empirically that positive assortative matching between firms and workers leads to an underestimation of the absolute value of wage elasticity of labor demand

To assess the employment effects of labor costs it is crucial to have reliable estimates of the labor cost elasticity of labor demand. Using a matched firm-worker dataset, we estimate a long run unconditional labor demand function, exploiting information on workers to correct for endogeneity in...