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Unpacking the Wage Sorting Trend

Author

Listed:
  • Rune Vejlin
  • Jonas Maibom
  • Malthe Elholm
  • Jesper Bagger

Abstract

Using Using Danish matched employer-employee data from 1980-2019, this paper shows that rising wage sorting - the correlation between worker and firm wage fixed effects - increased from 0.06 to 0.18 and is driven entirely by employment shifting toward firms that consistently form high‑sorting matches. Individual firms' sorting propensities remain stable. Decomposition reveals that 60% of the increase reflects reallocation among surviving firms, while 40% stems from firm entry and exit. Regression analysis highlights firm turnover and industry shifts as the primary drivers, with rising educational attainment contributing through the concentration of educated workers in high‑sorting firms. Job‑to‑job mobility is the main reallocation mechanism.

Suggested Citation

  • Rune Vejlin & Jonas Maibom & Malthe Elholm & Jesper Bagger, 2026. "Unpacking the Wage Sorting Trend," RFBerlin Discussion Paper Series 26095, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:26095
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    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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