Labor Market Dynamics with Sorting

Bastian Schulz

No 16467, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: I study a dynamic search-matching model with two-sided heterogeneity, a production complementarity that induces labor market sorting, and aggregate shocks. In response to a positive productivity shock, incentives to sort increase disproportionately. Firms respond by posting additional vacancies, and the strength of the response is increasing in firm productivity. The distribution of unemployment worker types adjusts slowly, which amplifies job creation in the short run. In the long run, falling unemployment curtails the firms' vacancy posting. The model closely matches time-series moments from U.S. labor market data and produces realistic degrees of wage dispersion and labor market sorting.

Keywords: worker heterogeneity; aggregate shocks; mismatch; sorting; matching; search; firm heterogeneity; unemployment dynamics (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 J64 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-09
New Economics Papers: this item is included in nep-dge, nep-hrm, nep-lab and nep-mac
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Published - published in: Journal of Economic Dynamics and Control, 2024, 158, 104776

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Journal Article: Labor market dynamics with sorting (2024)
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