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Firm Dynamics and Assortative Matching

Leland Crane

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: I study the relationship between firm growth and the characteristics of newly hired workers. Using Census microdata I obtain a novel empirical result: when a given firm grows faster it hires workers with higher past wages. These results suggest that productive, fast-growing firms tend to hire more productive workers, a form of positive assortative matching. This contrasts with prior research that has found negligible or negative sorting between workers and firms. I present evidence that this difference arises because previous studies have focused on cross-sectional comparisons across firms and industries, while my results condition on firm characteristics (e.g. size, industry, or firm fixed effects). Motivated by the empirical findings I develop a search model with heterogeneous workers and firms. The model is the first to study worker-firm sorting in an environment with worker heterogeneity, firm productivity shocks, multi-worker firms, and search frictions. Despite this richness the model is tractable, allowing me to characterize assortative matching, compositional dynamics and other properties analytically. I show that the model reproduces the positive firm growth-quality of hires correlation when worker and firm types are strong complements in production (i.e. the production function is strictly log-supermodular).

Keywords: Assortative Matching; Firm Growth; Wages; Unemployment; Vacancies; Search Theory; Microdata (search for similar items in EconPapers)
JEL-codes: E24 J31 J63 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ent, nep-lab, nep-lma, nep-mac and nep-sbm
Date: 2014-05
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https://www2.census.gov/ces/wp/2014/CES-WP-14-25.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:14-25

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