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BetterWorkers Move to Better Firms: A Simple Test to Identify Sorting

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  • Cristian Bartolucci
  • Francesco Devicienti

Abstract

We propose a simple test that uses information on workers’ mobility, wages and firms’ profits to identify the sign and strength of assortative matching. The basic intuition underlying our empirical strategy is that, in the presence of positive (negative) assortative matching, good workers are more (less) likely to move to better firms than bad workers. Assuming that agents’ payoffs are increasing in their own types, our test exploits within-firm variation on wages to rank workers by their types and firm profits to rank firms. We use a panel data set that combines social security earnings records for workers in the Veneto region of Italy with detailed balance-sheet data for firms. We find robust evidence that positive assortative matching is pervasive in the labor market. This result is in contrast with what we find from correlating the worker and firm fixed effects in standard Mincerian wage equations.

Suggested Citation

  • Cristian Bartolucci & Francesco Devicienti, 2013. "BetterWorkers Move to Better Firms: A Simple Test to Identify Sorting," Carlo Alberto Notebooks 332, Collegio Carlo Alberto.
  • Handle: RePEc:cca:wpaper:332
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    Citations

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    Cited by:

    1. Rasmus Lentz & Jesper Bagger, 2009. "An Empirical Model of Wage Dispersion with Sorting," 2009 Meeting Papers 964, Society for Economic Dynamics.
    2. Gaure, Simen, 2014. "Practical Correlation Bias Correction in Two-way Fixed Effects Linear Regression," Memorandum 21/2014, Oslo University, Department of Economics.
    3. Leland D. Crane, 2014. "Firm Dynamics and Assortative Matching," Working Papers 14-25, Center for Economic Studies, U.S. Census Bureau.
    4. Cristian Bartolucci, 2013. "Gender Wage Gaps Reconsidered: A Structural Approach Using Matched Employer-Employee Data," Journal of Human Resources, University of Wisconsin Press, vol. 48(4), pages 998-1034.
    5. John M. Abowd & Francis Kramarz & Sébastien Pérez-Duarte & Ian M. Schmutte, 2018. "Sorting Between and Within Industries: A Testable Model of Assortative Matching," Annals of Economics and Statistics, GENES, issue 129, pages 1-32.
    6. Gabriel Burdín, 2016. "Equality Under Threat by the Talented: Evidence from Worker‐Managed Firms," Economic Journal, Royal Economic Society, vol. 126(594), pages 1372-1403, August.
    7. Bagger, Jesper & Sørensen, Kenneth L. & Vejlin, Rune, 2013. "Wage sorting trends," Economics Letters, Elsevier, vol. 118(1), pages 63-67.
    8. Rasmus Lentz & Jesper Bagger, 2015. "An Empirical Model of Wage Dispersion with Sorting," 2015 Meeting Papers 1345, Society for Economic Dynamics.
    9. Ryan Michaels & Michele Battisti, 2013. "Coordinated labor Supply within the Firm: Evidence and Implications," 2013 Meeting Papers 1116, Society for Economic Dynamics.
    10. Jesper Bagger & Rasmus Lentz, 2014. "An Empirical Model of Wage Dispersion with Sorting," Economics Working Papers 2014-11, Department of Economics and Business Economics, Aarhus University.
    11. Battisti, Michele, 2017. "High wage workers and high wage peers," Labour Economics, Elsevier, vol. 46(C), pages 47-63.
    12. Marino, Marianna & Parrotta, Pierpaolo & Pozzoli, Dario, 2016. "Educational diversity and knowledge transfers via inter-firm labor mobility," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 168-183.
    13. Cristian Bartolucci & Ignacio Monzon, 2014. "Frictions Lead to Sorting: a Partnership Model with On-the-Match Search," Carlo Alberto Notebooks 385, Collegio Carlo Alberto.
    14. Merlino L.P. & Parrotta P. & Pozzoli D., 2014. "Gender differences in sorting," Research Memorandum 022, Maastricht University, Graduate School of Business and Economics (GSBE).
    15. Luca Paolo Merlino & Pierpaolo Parrotta & Dario Pozzoli, 2012. "Assortative Matching Gender," Working Papers ECARES ECARES 2012-040, ULB -- Universite Libre de Bruxelles.
    16. repec:aea:jeclit:v:55:y:2017:i:2:p:493-544 is not listed on IDEAS
    17. Jacob Schwartz, 2018. "Schooling Choice, Labour Market Matching, and Wages," Papers 1803.09020, arXiv.org, revised Apr 2018.

    More about this item

    Keywords

    Assortative matching; worker mobility; wages; profits; matched employeremployee data;

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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