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An Empirical Model of Wage Dispersion with Sorting

Jesper Bagger and Rasmus Lentz

Review of Economic Studies, 2019, vol. 86, issue 1, 153-190

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.

Keywords: Sorting; Search intensity; Worker heterogeneity; Firm heterogeneity; On-the-job search; Mismatch; Wage dispersion; Matched employer–employee data (search for similar items in EconPapers)
JEL-codes: J24 J33 J62 J63 J64 D83 E24 (search for similar items in EconPapers)
Date: 2019
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