A Formal Test of Assortative Matching in the Labor Market

John Abowd (), Francis Kramarz (), Sebastien Perez-Duarte and Ian Schmutte

No 15546, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate a structural model of job assignment in the presence of coordination frictions due to Shimer (2005). The coordination friction model places restrictions on the joint distribution of worker and firm effects from a linear decomposition of log labor earnings. These restrictions permit estimation of the unobservable ability and productivity differences between workers and their employers as well as the way workers sort into jobs on the basis of these unobservable factors. The estimation is performed on matched employer-employee data from the LEHD program of the U.S. Census Bureau. The estimated correlation between worker and firm effects from the earnings decomposition is close to zero, a finding that is often interpreted as evidence that there is no sorting by comparative advantage in the labor market. Our estimates suggest that this finding actually results from a lack of sufficient heterogeneity in the workforce and available jobs. Workers do sort into jobs on the basis of productive differences, but the effects of sorting are not visible because of the composition of workers and employers.

JEL-codes: E24 J21 J31 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-lab and nep-mac
Note: LS
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Citations: View citations in EconPapers (29)

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Working Paper: A Formal Test of Assortative Matching in the Labor Market (2009)
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