Sorting Multidimensional Types: Theory and Application

Ilse Lindenlaub
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Ilse Lindenlaub: European University Institute

No 979, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies multidimensional matching between workers and jobs. Workers differ in manual and cognitive skills and sort into jobs that demand different combinations of these two skills. To study this multidimensional sorting, I develop a theoretical framework that generalizes the unidimensional notion of assortative matching. I derive the equilibrium in closed form and use this explicit solution to study biased technological change. The key finding is that an increase in worker-job complementarities in cognitive relative to manual inputs leads to more pronounced sorting and wage inequality across cognitive relative to manual skills. This can trigger wage polarization and boost aggregate wage dispersion. I then estimate the model for the US and identify sizeable technology shifts: during the 1990s, worker-job complementarities in cognitive inputs increased by 15% whereas complementarities in manual inputs decreased by 41%. In addition to this bias in complementarities, there has also been a strong cognitive skill-bias in production. Counterfactual exercises suggest that these technology shifts can account for observed changes in worker-job sorting, wage polarization and a significant part of the increase in US wage dispersion.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:979

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