Cyclical Labor Market Sorting

Leland Crane, Henry Hyatt and Seth Murray
Additional contact information
Henry Hyatt: US Census Bureau
Seth Murray: University of Maryland

No 939, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We consider sorting in the labor market, that is, whether high or low productivity workers and firms tend to match with each other, and how this varies cyclically using U.S. matched employer-employee data for recent decades. Although there is considerable disagreement in the nature and extent of assortative matching among different methods for ranking workers and firms, we consistently find that the productivity composition of workers and firms moves in opposite directions over the business cycle. During and after recessions, low-productivity workers leave the labor market, while low-productivity firms gain as a share of employment, so positive assortative matching is greatest in magnitude in the early stages of economic contractions. These results are consistent with differences between workers, rather than firms, driving the value of output, which we demonstrate using a model of labor market search.

Date: 2018
New Economics Papers: this item is included in nep-dge and nep-ure
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