An Empirical Model of Wage Dispersion with Sorting. (11th May 2018)

• Record Type: Journal Article
• Authors: Bagger, Jesper; Lentz, Rasmus
• Is Part Of: Review of economic studies. Volume 86:Number 1(2019)
• Page Start: 153
• Page End: 190
• Publication Date: 2018-05-11
• Subjects: Sorting -- Search intensity -- Worker heterogeneity -- Firm heterogeneity -- On-the-job search -- Mismatch -- Wage dispersion -- Matched employer–employee data; J24 -- J33 -- J62 -- J63 -- J64 -- D83 -- E24; Economics -- Periodicals; 330
• DOI: 10.1093/restud/rdy022
• Languages: English
• ISSNs: 0034-6527

Abstract

Abstract: We estimate an equilibrium on-the-job search model with endogenous search intensity. Workers differ by skill, firms by productivity. Workers respond to mismatch by intensive search, and sorting may result from complementarities in the match-level production function. The model is estimated on Danish-matched employer–employee data. Firms are ranked through revealed preference by the fraction of hires that is poached from other firms: the poaching rank. Identification is obtained by firm rank conditional mobility and wage patterns. Wage variation is decomposed into four sources: sorting (40%), worker heterogeneity (32%), firm heterogeneity (18%), and frictional competition (10%). A social planner can improve output net of search cost by 1.5% relative to the decentralized solution.