IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp16467.html
   My bibliography  Save this paper

Labor Market Dynamics with Sorting

Author

Listed:
  • Schulz, Bastian

    (Aarhus University)

Abstract

I study a dynamic search-matching model with two-sided heterogeneity, a production complementarity that induces labor market sorting, and aggregate shocks. In response to a positive productivity shock, incentives to sort increase disproportionately. Firms respond by posting additional vacancies, and the strength of the response is increasing in firm productivity. The distribution of unemployment worker types adjusts slowly, which amplifies job creation in the short run. In the long run, falling unemployment curtails the firms' vacancy posting. The model closely matches time-series moments from U.S. labor market data and produces realistic degrees of wage dispersion and labor market sorting.

Suggested Citation

  • Schulz, Bastian, 2023. "Labor Market Dynamics with Sorting," IZA Discussion Papers 16467, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16467
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp16467.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    2. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j003nctkn is not listed on IDEAS
    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. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258, National Bureau of Economic Research, Inc.
    5. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    6. Jeremy Lise & Jean-Marc Robin, 2017. "The Macrodynamics of Sorting between Workers and Firms," American Economic Review, American Economic Association, vol. 107(4), pages 1104-1135, April.
    7. Pieter A. Gautier & Coen N. Teulings, 2015. "Sorting And The Output Loss Due To Search Frictions," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1136-1166, December.
    8. repec:hal:spmain:info:hdl:2441/78hlmdbud88hhp5vbdddivv2hu is not listed on IDEAS
    9. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-291, April.
    10. Jean‐Marc Robin, 2011. "On the Dynamics of Unemployment and Wage Distributions," Econometrica, Econometric Society, vol. 79(5), pages 1327-1355, September.
    11. Kyle Herkenhoff & Jeremy Lise & Guido Menzio & Gordon M. Phillips, 2018. "Production and Learning in Teams," NBER Working Papers 25179, National Bureau of Economic Research, Inc.
    12. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    13. Marcus Hagedorn & Tzuo Hann Law & Iourii Manovskii, 2017. "Identifying Equilibrium Models of Labor Market Sorting," Econometrica, Econometric Society, vol. 85, pages 29-65, January.
    14. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 91(Sum), pages 19-50.
    15. Boppart, Timo & Krusell, Per & Mitman, Kurt, 2018. "Exploiting MIT shocks in heterogeneous-agent economies: the impulse response as a numerical derivative," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 68-92.
    16. Andreas I. Mueller, 2017. "Separations, Sorting, and Cyclical Unemployment," American Economic Review, American Economic Association, vol. 107(7), pages 2081-2107, July.
    17. Nöldeke, Georg & Tröger, Thomas, 2009. "Matching Heterogeneous Agents with a Linear Search Technology," Bonn Econ Discussion Papers 1/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).
    18. Toshihiko Mukoyama, 2019. "Heterogeneous Jobs and the Aggregate Labour Market," The Japanese Economic Review, Springer, vol. 70(1), pages 30-50, March.
    19. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    20. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    21. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, April.
    22. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    23. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    24. Stéphane Bonhomme & Thibaut Lamadon & Elena Manresa, 2019. "A Distributional Framework for Matched Employer Employee Data," Econometrica, Econometric Society, vol. 87(3), pages 699-739, May.
    25. Bagger, Jesper & Sørensen, Kenneth L. & Vejlin, Rune, 2013. "Wage sorting trends," Economics Letters, Elsevier, vol. 118(1), pages 63-67.
    26. Coen N. Teulings & Pieter A. Gautier, 2004. "The Right Man for the Job," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 553-580.
    27. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-690, September.
    28. repec:hal:spmain:info:hdl:2441/2gm7u1h28o97arriihp43sr90l is not listed on IDEAS
    29. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    30. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    31. Jean-Marc Robin, 2011. "On the Dynamics of unemployment and wage Distributions," SciencePo Working papers hal-01024463, HAL.
    32. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09j003nctkn is not listed on IDEAS
    33. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8grh35j2 is not listed on IDEAS
    34. Reiter, Michael, 2009. "Solving heterogeneous-agent models by projection and perturbation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 649-665, March.
    35. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    36. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    37. Freund, L. B., 2022. "Superstar Teams: The Micro Origins and Macro Implications of Coworker Complementarities," Janeway Institute Working Papers 2235, Faculty of Economics, University of Cambridge.
    38. Michael Pries, 2008. "Worker Heterogeneity and Labor Market Volatility in Matching Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 664-678, July.
    39. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 217-227.
    40. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2011. "Frictional Wage Dispersion in Search Models: A Quantitative Assessment," American Economic Review, American Economic Association, vol. 101(7), pages 2873-2898, December.
    41. Pieter A. Gautier & Coen N. Teulings & Aico Van Vuuren, 2010. "On-the-Job Search, Mismatch and Efficiency ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(1), pages 245-272.
    42. Jesper Bagger & Rasmus Lentz, 2019. "An Empirical Model of Wage Dispersion with Sorting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 153-190.
    43. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    44. repec:hal:spmain:info:hdl:2441/dc0ckec3fcb29ms985085gkbp is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin Lochner & Bastian Schulz, 2024. "Firm Productivity, Wages, and Sorting," Journal of Labor Economics, University of Chicago Press, vol. 42(1), pages 85-119.
    2. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    3. Tsasa, Jean-Paul K., 2022. "Labor market volatility in a fully specified RBC search model: An analytical investigation," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    4. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    5. Kuehn Lars-Alexander & Petrosky-Nadeau Nicolas & Zhang Lu, "undated". "An Equilibrium Asset Pricing Model with Labor Market Search," GSIA Working Papers 2010-E63, Carnegie Mellon University, Tepper School of Business.
    6. Masanori Kashiwagi, 2018. "The Welfare Consequences Of A Quantitative Search And Matching Approach To The Labor Market," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 423-442, October.
    7. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    8. Niklas Engbom & Christian Moser, 2022. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," American Economic Review, American Economic Association, vol. 112(12), pages 3803-3847, December.
    9. Martin Gervais & Nir Jaimovich & Henry E. Siu & Yaniv Yedid‐Levi, 2015. "Technological Learning And Labor Market Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(1), pages 27-53, February.
    10. Toshihiko Mukoyama, 2019. "Heterogeneous Jobs and the Aggregate Labour Market," The Japanese Economic Review, Japanese Economic Association, vol. 70(1), pages 30-50, March.
    11. Pieter A. Gautier & Coen N. Teulings, 2015. "Sorting And The Output Loss Due To Search Frictions," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1136-1166, December.
    12. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2015. "Macroeconomic dynamics in a model of goods, labor, and credit market frictions," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 97-113.
    13. Alejandro Justiniano & Claudio Michelacci, 2012. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the United States and Europe," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 169-235.
    14. Murtin, Fabrice & Robin, Jean-Marc, 2018. "Labor market reforms and unemployment dynamics," Labour Economics, Elsevier, vol. 50(C), pages 3-19.
    15. Ortego-Marti, Victor, 2016. "Unemployment history and frictional wage dispersion," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 5-22.
    16. Giuseppe Moscarini & Fabien Postel-Vinay, 2016. "Wage Posting and Business Cycles: a Quantitative Exploration," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 135-160, January.
    17. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    18. Morvay, Endre, 2012. "Munkapiac keresési súrlódásokkal [Job-seeking on the labour market, with frictions]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 139-163.
    19. Cai, Xiaoming & Gautier, Pieter A. & Teulings, Coen N. & Watanabe, Makoto, 2014. "Collective versus decentralized wage bargaining and the efficient allocation of resources," Labour Economics, Elsevier, vol. 26(C), pages 34-42.
    20. Guillaume Wilemme, 2021. "Optimal Taxation to Correct Job Mismatching," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 170-197, April.

    More about this item

    Keywords

    worker heterogeneity; aggregate shocks; mismatch; sorting; matching; search; firm heterogeneity; unemployment dynamics;
    All these keywords.

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp16467. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.