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A Formal Test of Assortative Matching in the Labor Market

  • John Abowd
  • Francis Kramarz
  • Sebastien Perez-Duarte
  • Ian Schmutte

We estimate a structural model of job assignment in the presence of coordination frictions due to Shimer (2005). The coordination friction model places restrictions on the joint distribution of worker and firm effects from a linear decomposition of log labor earnings. These restrictions permit estimation of the unobservable ability and productivity differences between workers and their employers as well as the way workers sort into jobs on the basis of these unobservable factors. The estimation is performed on matched employer-employee data from the LEHD program of the U.S. Census Bureau. The estimated correlation between worker and firm effects from the earnings decomposition is close to zero, a finding that is often interpreted as evidence that there is no sorting by comparative advantage in the labor market. Our estimates suggest that his finding actually results from a lack of sufficient heterogeneity in the workforce and available jobs. Workers do sort into jobs on the basis of productive differences, but the effects of sorting are not visible because of the composition of workers and employers.

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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 09-40.

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Length: 40 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:cen:wpaper:09-40
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  1. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
  2. John J. Abowd & John Haltiwanger & Julia Lane, 2004. "Integrated Longitudinal Employer-Employee Data for the United States," American Economic Review, American Economic Association, vol. 94(2), pages 224-229, May.
  3. David W. Stevens, 2002. "Employment that is not covered by state unemployment," Longitudinal Employer-Household Dynamics Technical Papers 2002-16, Center for Economic Studies, U.S. Census Bureau.
  4. John M. Abowd & Francis Kramarz & David Margolis, 1999. "High Wage Workers and High Wage Firms," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00353892, HAL.
  5. repec:inr:wpaper:155908 is not listed on IDEAS
  6. Robert Shimer, 2001. "The Assignment of Workers to Jobs In an Economy with Coordination Frictions," NBER Working Papers 8501, National Bureau of Economic Research, Inc.
  7. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
  8. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
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