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An Empirical Model of Wage Dispersion with Sorting

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  • Rasmus Lentz

    (University of Wisconsin-Madison)

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    Abstract

    The paper studies contributions to wage dispersion in a model that allows for sorting in firm-worker matches. The model is a general equilibrium on-the-job search model with wage formation similar to that of Cahuc et al. (2006). Workers differ in their permanent skill level and firms differ with respect to productivity. As shown in Lentz (2010), in this setting, positive (negative) sorting results if the match production function is supermodular (submodular). The model is estimated on Danish matched employer-employee data that cover the entire worker and firm population at a weekly observation frequency. The data allow a detailed view of worker and firm conditional spell hazard heterogeneity, which is at the core of the paper's identification strategy. In addition the data contain match wages which also enter the estimation, however, the estimation does not employ the direct strategy of estimating the correlation between worker and firm wage fixed effects. As shown in previous versions of this paper as well as de Melo 2008 and Lise et al. 2008, this approach fails to identify sorting on worker-firm types in models where wages are possibly non-monotone functions of the fundamental worker skill and firm productivity heterogeneity. Preliminary estimates point to positive sorting between worker skill and firm productivity, although with modest efficiency gains if the estimated population of jobs and workers are allocated efficiently.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1040.

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    Date of creation: 2012
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    Handle: RePEc:red:sed012:1040

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    2. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage bargaining with on-the-job search: theory and evidence," Working Papers 150201, Institut National de la Recherche Agronomique, France.
    3. Shintaro Yamaguchi, 2007. "Job Search, Bargaining, and Wage Dynamics," Department of Economics Working Papers 2007-03, McMaster University.
    4. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    5. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
    6. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
    7. Jean-Marc Robin & Costas Meghir & Jeremy Lise, 2009. "Matching, Sorting and Wages," 2009 Meeting Papers 180, Society for Economic Dynamics.
    8. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    9. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2003. "On the Job Search and the Wage Distribution," CAM Working Papers 2004-09, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    10. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
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    Cited by:
    1. Grossman, Gene, 2013. "Heterogeneous Workers and International Trade," CEPR Discussion Papers 9341, C.E.P.R. Discussion Papers.

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