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Labor Market Models of Worker and Firm Heterogeneity

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  • Rasmus Lentz
  • Dale T. Mortensen

    ()
    (Department of Economics, University of Wisconsin, Madison, Wisconsin 53706, NBER, and CAM
    Department of Economics, Northwestern University, Evanston, Illinois 60208, Aarhus University, NBER, and IZA)

Abstract

Microeconomic data on individual firms and employer-employee matches reveal substantial and persistent dispersion in firm size, productivity, and average wage paid and a positive correlation between each pair. To the extent that intrinsic differences in firm productivity explain these facts, there are several important consequences. First, the reallocation of employment from less to more productive firms will yield efficiency gains. Second, workers will find it in their interest to seek out higher-paying employers. Recent research has provided support for both hypotheses. Third, the existence of worker and employer heterogeneity offers possible gains from sorting. However, because the problem of identifying the presence of sorting is model dependent, it is too early for conclusions about its significance.

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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 2 (2010)
Issue (Month): 1 (09)
Pages: 577-602

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Handle: RePEc:anr:reveco:v:2:y:2010:p:577-602

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Related research

Keywords: productivity differentials; size distribution of firms; wage dispersion; reallocation; assortative matching;

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Cited by:
  1. Jean-Baptiste Michau, 2013. "On the Provision of Insurance Against Search-Induced Wage Fluctuations," Working Papers hal-00850547, HAL.
  2. Hartmut Egger & Michael Koch, 2013. "Trade and the Firm-Internal Allocation of Workers to Tasks," Working Papers 139, Bavarian Graduate Program in Economics (BGPE).
  3. Rui Baptista & Francisco Lima & Miguel Preto, 2013. "Entrepreneurial skills and workers’ wages in small firms," Small Business Economics, Springer, vol. 40(2), pages 309-323, February.
  4. Mebratie, A.D. & van Bergeijk, P.A.G., 2011. "Firm Heterogeneity and Development: A Meta Analysis of FDI Productivity Spill-overs," ISS Working Papers - General Series 525, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  5. Michèle A. Weynandt, 2014. "Selective Firing and Lemons," NRN working papers 2014-05, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.

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