Labor Market Dynamics with Sorting

TY - JOUR

T1 - Labor Market Dynamics with Sorting

AU - Schulz, Bastian

PY - 2024/1

Y1 - 2024/1

N2 - 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.

AB - 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.

KW - Search

KW - Matching

KW - Sorting

KW - Mismatch

KW - Aggregate Shocks

KW - Worker Heterogeneity

KW - Firm Heterogeneity

KW - Unemployment Dynamics

KW - Unemployment dynamics

KW - Firm heterogeneity

KW - Aggregate shocks

KW - Worker heterogeneity

U2 - 10.1016/j.jedc.2023.104776

DO - 10.1016/j.jedc.2023.104776

M3 - Journal article

SN - 0165-1889

VL - 158

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

M1 - 104776

ER -