Labor Market Models of Worker and Firm Heterogeneity

Rasmus Lentz and Dale Mortensen

Annual Review of Economics, 2010, vol. 2, issue 1, 577-602

Abstract: Microeconomic data on individual firms and employer-employee matches reveal substantial and persistent dispersion in firm size, productivity, and average wage paid and a positive correlation between each pair. To the extent that intrinsic differences in firm productivity explain these facts, there are several important consequences. First, the reallocation of employment from less to more productive firms will yield efficiency gains. Second, workers will find it in their interest to seek out higher-paying employers. Recent research has provided support for both hypotheses. Third, the existence of worker and employer heterogeneity offers possible gains from sorting. However, because the problem of identifying the presence of sorting is model dependent, it is too early for conclusions about its significance.

Keywords: productivity differentials; size distribution of firms; wage dispersion; reallocation; assortative matching (search for similar items in EconPapers)
JEL-codes: D24 J24 J31 J41 L11 L25 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (26)

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