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A Formal Test of Assortative Matching in the Labor Market

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  • John M. Abowd
  • Francis Kramarz
  • Sébastien Pérez-Duarte
  • Ian Schmutte

Abstract

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 this 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.

Suggested Citation

  • John M. Abowd & Francis Kramarz & Sébastien Pérez-Duarte & Ian Schmutte, 2009. "A Formal Test of Assortative Matching in the Labor Market," NBER Working Papers 15546, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15546 Note: LS
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    References listed on IDEAS

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    1. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    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. 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.
    4. 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.
    5. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
    6. 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.
    7. 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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    Citations

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    Cited by:

    1. Mikael Carlsson & Julián Messina & Oskar Nordström Skans, 2016. "Wage Adjustment and Productivity Shocks," Economic Journal, Royal Economic Society, vol. 126(595), pages 1739-1773, September.
    2. Fredrik Andersson & Elizabeth E. Davis & Matthew L. Freedman & Julia I. Lane & Brian P. Mccall & Kristin Sandusky, 2012. "Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(4), pages 779-810, October.
    3. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2016. "Matching, Sorting and Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 63-87, January.
    4. Araújo, Bruno César & Paz, Lourenço S., 2014. "The effects of exporting on wages: An evaluation using the 1999 Brazilian exchange rate devaluation," Journal of Development Economics, Elsevier, vol. 111(C), pages 1-16.
    5. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2013. "Mismatch, Sorting and Wages Dynamics," Sciences Po publications info:hdl:2441/32h1padvln8, Sciences Po.
    6. Barth, Erling & Bratsberg, Bernt & Raaum, Oddbjørn, 2012. "Immigrant wage profiles within and between establishments," Labour Economics, Elsevier, vol. 19(4), pages 541-556.
    7. Schmutte, Ian M., 2014. "Free to Move? A Network Analytic Approach for Learning the Limits to Job Mobility," Labour Economics, Elsevier, vol. 29(C), pages 49-61.
    8. Richard Duhautois & Fabrice Gilles & Héloïse Petit, 2012. "Worker flows and establishment wage differentials : a breakdown of the relationship," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00833872, HAL.
    9. David J. Deming, 2015. "The Growing Importance of Social Skills in the Labor Market," NBER Working Papers 21473, National Bureau of Economic Research, Inc.
    10. Andrews, M.J. & Gill, L. & Schank, T. & Upward, R., 2012. "High wage workers match with high wage firms: Clear evidence of the effects of limited mobility bias," Economics Letters, Elsevier, vol. 117(3), pages 824-827.
    11. Chia-Hui Chen & Junichiro Ishida, 2015. "A Tenure-Clock Problem," ISER Discussion Paper 0919, Institute of Social and Economic Research, Osaka University.
    12. GORYUNOV, Maxim, 2017. "Sorting when firms have size," Economics Working Papers MWP 2017/09, European University Institute.

    More about this item

    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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