Firm labor productivity and average wages paid by firms vary considerably and are positively correlated. These observations can be rationalized either by exogenous TFP heterogeneity in firm productivity coupled with rent sharing or by differences in capital intensity and in the quality of labor...

Abstract The paper is based on a synthesis of a "product variety" version of the firm life cycle model developed by Klette and Kortum (2004) and an equilibrium search model of the labor market with job to job flows introduced by Mortensen (2003). In the construction, a continuum of intermediate...