Department of Economics and Business Economics

An Empirical Model of Wage Dispersion with Sorting

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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.

Original languageEnglish
JournalReview of Economic Studies
Pages (from-to)153-190
Number of pages38
Publication statusPublished - 2019

    Research areas

  • Firm heterogeneity, Matched employer-employee data, Mismatch, On-the-job search, Search intensity, Sorting, Wage dispersion, Worker heterogeneity

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