Identifying Equilibrium Models of Labor Market Sorting

Marcus Hagedorn, Tzuo Hann Law and Iourii Manovskii

No 18661, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Does the market allocate the right workers to the right jobs? Since observable (to economists) variables account for only a small fraction of the wage variance in the data, to answer this question it is essential to study assortative matching between employers and employees based on their unobserved characteristics. This paper enables this line of research. We show theoretically that all parameters of the classic model of sorting based on absolute advantage in Becker (1973) with search frictions can be identified using only matched employer-employee data on wages and labor market transitions. In particular, these data are sufficient to assess whether matching between workers and firms is assortative, whether sorting is positive or negative, and to measure the potential effect on output from moving any given worker to any given employer in the economy. We provide computational algorithms that implement our identification strategy given the limitations of the available data sets. Finally, we extend our identification and implementation strategies to the commonly used class of models of sorting based on comparative advantage and provide a test that discriminates between these models.

JEL-codes: C63 C78 E24 J31 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-lab
Note: EFG
References: Add references at CitEc
Citations: View citations in EconPapers (34)

Published as Marcus Hagedorn & Tzuo Hann Law & Iourii Manovskii, 2017. "Identifying Equilibrium Models of Labor Market Sorting," Econometrica, Econometric Society, vol. 85, pages 29-65, January.

Downloads: (external link)
http://www.nber.org/papers/w18661.pdf (application/pdf)

Related works:
Journal Article: Identifying Equilibrium Models of Labor Market Sorting (2017)
Working Paper: Identifying Equilibrium Models of Labor Market Sorting (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:18661

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w18661

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().