IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

An Empirical Model of Wage Dispersion with Sorting

  • Jesper Bagger

    ()

    (Royal Holloway, University of London)

  • Rasmus Lentz

    (University of Wisconsin-Maddison)

Registered author(s):

    This paper studies wage dispersion in an equilibrium on-the-job-search model with endogenous search intensity. Workers differ in their permanent skill level and firms differ with respect to productivity. Positive (negative) sorting results if the match production function is supermodular (submodular). The model is estimated on Danish matched employer-employee data. We find evidence of positive assortative matching. In the estimated equilibrium match distribution, the correlation between worker skill and firm productivity is 0.12. The assortative matching has a substantial impact on wage dispersion. We decompose wage variation into four sources: Worker heterogeneity, firm heterogeneity, frictions, and sorting. Worker heterogeneity contributes 51% of the variation, firm heterogeneity contributes 11%, frictions 23%, and finally sorting contributes 15%. We measure the output loss due to mismatch by asking how much greater output would be if the estimated population of matches were perfectly positively assorted. In this case, output would increase by 7.7%.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: ftp://ftp.econ.au.dk/afn/wp/14/wp14_11.pdf
    Download Restriction: no

    Paper provided by Department of Economics and Business Economics, Aarhus University in its series Economics Working Papers with number 2014-11.

    as
    in new window

    Length: 53
    Date of creation: 01 Apr 2014
    Date of revision:
    Handle: RePEc:aah:aarhec:2014-11
    Contact details of provider: Web page: http://www.econ.au.dk/afn/

    References listed on IDEAS
    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.:

    as in new window
    1. Jesper Bagger & François Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2011. "Tenure, Experience, Human Capital and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
    2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
    3. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00357751, HAL.
    4. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De.
    5. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2013. "Matching, Sorting and Wages," Working Papers hal-01070442, HAL.
    6. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
    7. Bartolucci, Cristian & Devicienti, Francesco, 2013. "Better Workers Move to Better Firms: A Simple Test to Identify Sorting," IZA Discussion Papers 7601, Institute for the Study of Labor (IZA).
    8. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage bargaining with on-the-job search: theory and evidence," Sciences Po publications info:hdl:2441/dc0ckec3fcb, Sciences Po.
    9. Pieter A. Gautier & Coen N. Teulings, 2011. "Sorting and the Output Loss due to Search Frictions," CESifo Working Paper Series 3359, CESifo Group Munich.
    10. David Margolis, 1995. "High Wage Workers and High Wage Firms," Post-Print halshs-00378229, HAL.
    11. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2b, Massachusetts Institute of Technology (MIT), Department of Economics.
    12. 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.
    13. Philipp Kircher & Jan Eeckhout, 2009. "Identifying Sorting, In Theory," 2009 Meeting Papers 581, Society for Economic Dynamics.
    14. H. Bunzel & B. J. Christensen & P. Jensen & N. M. Kiefer & L. Korsholm & L. Muus & G. R. Neumann & M. Rosholm, 2001. "Specification and Estimation of Equilibrium Search Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 90-126, January.
    15. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
    16. Giovanni L. Violante & Per Krusell & Andreas Hornstein, 2006. "Frictional wage dispersion in search models: a quantitative assessment," Working Paper 06-07, Federal Reserve Bank of Richmond.
    17. Grégory Jolivet & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "The Empirical Content of the Job Search Model: Labor Mobility and Wage Distributions in Europe and the U.S," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00308803, HAL.
    18. Dey, M. S. & Flinn, C. J., 2000. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Working Papers 00-18, C.V. Starr Center for Applied Economics, New York University.
    19. Lentz, Rasmus, 2010. "Sorting by search intensity," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1436-1452, July.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:aah:aarhec:2014-11. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.