Many studies use matched employer-employee data to estimate a statistical model of earnings determination where log-earnings are expressed as the sum of worker effects, firm effects, covariates, and idiosyncratic error terms. Es- timates based on this model have produced two influential yet controversial conclusions. First, firm effects typically explain around 20% of the variance of log-earnings, pointing to the importance of firm-specific wage-setting for earnings inequality. Second, the correlation between firm and worker effects is often small and sometimes negative, indicating little if any sorting of high-wage workers to high-paying firms. The objective of this paper is to assess the sensi- tivity of these conclusions to the biases that arise because of limited mobility of workers across firms. We use employer-employee data from the US and several European countries while taking advantage of both fixed-effects and random- effects methods for bias-correction. We find that limited mobility bias is severe and that bias-correction is important. Once one corrects for limited mobility bias, firm effects matter less for earnings inequality and worker sorting becomes always positive and typically strong.