Competence, Complementarity, and Career Choice

We build a tractable assignment model to identify the degree of complemen- tarity between attributes of firms and managers in production. Managers learn about their own type by observing a sequence of public signals. Each period, the sorting of firms and managers is ex ante perfectly assortative, but is generally not so ex post. We use a simulated method of moments to replicate empirical targets from a large matched employer-employee dataset covering the Danish la- bor force between 1999 and 2007. We exploit the non-monotonicity of executive compensation in the employer type to structurally estimate the degrees of com- plementarity in the production function. Our results fill an important gap in the literature on the aggregate effects of mismatch that was previously highlighted in Alder (2011).