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An Empirical Model of Wage Dispersion with Sorting

  • Rasmus Lentz

    (University of Wisconsin-Madison)

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    The paper studies contributions to wage dispersion in a model that allows for sorting in firm-worker matches. The model is a general equilibrium on-the-job search model with wage formation similar to that of Cahuc et al. (2006). Workers differ in their permanent skill level and firms differ with respect to productivity. As shown in Lentz (2010), in this setting, positive (negative) sorting results if the match production function is supermodular (submodular). The model is estimated on Danish matched employer-employee data that cover the entire worker and firm population at a weekly observation frequency. The data allow a detailed view of worker and firm conditional spell hazard heterogeneity, which is at the core of the paper's identification strategy. In addition the data contain match wages which also enter the estimation, however, the estimation does not employ the direct strategy of estimating the correlation between worker and firm wage fixed effects. As shown in previous versions of this paper as well as de Melo 2008 and Lise et al. 2008, this approach fails to identify sorting on worker-firm types in models where wages are possibly non-monotone functions of the fundamental worker skill and firm productivity heterogeneity. Preliminary estimates point to positive sorting between worker skill and firm productivity, although with modest efficiency gains if the estimated population of jobs and workers are allocated efficiently.

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    File URL: https://www.economicdynamics.org/meetpapers/2012/paper_1040.pdf
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    Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1040.

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    Date of creation: 2012
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    Handle: RePEc:red:sed012:1040
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    1. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
    2. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2013. "Matching, Sorting and Wages," Sciences Po publications 11, Sciences Po.
    3. 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.
    4. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
    5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
    6. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    7. Shintaro Yamaguchi, 2006. "Job Search, Bargaining, and Wage Dynamics," 2006 Meeting Papers 54, Society for Economic Dynamics.
    8. 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.
    9. repec:inr:wpaper:155908 is not listed on IDEAS
    10. repec:inr:wpaper:150201 is not listed on IDEAS
    11. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2005. "On-the-Job Search and the Wage Distribution," Journal of Labor Economics, University of Chicago Press, vol. 23(1), pages 31-58, January.
    12. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
    13. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    14. 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 US," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00279066, HAL.
    15. 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.
    16. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00176090, HAL.
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