Identifying Sorting: In Theory

By Jan Eeckhout, Philipp Kircher. Social Science Research Network, 2009

272 citations recorded by the source corpus.

Assortative Matching between workers and firms provides evidence of the complementarities or substitutes in production. The presence of complementarities is important for policies that aim to achieve the optimal allocation of resources, for example unemployment insurance. We argue that using wage data alone, it is virtually impossible to identify whether Assortative Matching is positive or negative. Even though we cannot identify the sign of the sorting, we can identify the strength, i.e., the magnitude of the cross-partial, and the associated welfare loss. We show first that the wage for a given worker is non-monotonic in the type of his employer. This is due to the fact that in a sorting model, wages re ect the opportunity cost of mismatch. We show analytically that this non-monotonicity prevents standard form fixed effects to correlate with the true type of the form. We then propose an alternative procedure that measures the strength of sorting in the presence of search frictions. Knowing the strength of sorting facilitates the measurement of the output loss due to mismatch.

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Citations in the corpus

Earnings Inequality and the Minimum Wage: Evidence from Brazil (2017, background): “6 Such microfoundations are important to interpret moments of the aforementioned empirical literature, particularly the pattern of sorting between workers and firms (Lentz and Mortensen, 2010; Eeckhout and Kircher, 2011; Lopes de Melo, 2017; Bonhomme et al., 2016). We thus provide a theory for the c”
Job Referral Networks and the Determination of Earnings in Local Labor Markets (2014, background): “…wage components from AKM have a structural interpretation as latent productivity, so the analysis is not subject to the concerns raised by, e.g. Shimer (2005) and Eeckhout and Kircher (2011) 18Abowd et al. (2010) formally reject the null hypothesis of the exogenous mobility assumption in LEHD data.”
A Distributional Framework for Matched Employer Employee Data (2019, background): “Eeckhout and Kircher (2011) show that in some cases it can be impossible to recover such a productivity ordering from wage data only.”
Sources of Displaced Workers’ Long-Term Earnings Losses (2017, unknown): “However, Eeckhout and Kircher (2011) show that a structural model with worker-employer sorting does not produce a wage equation that is log-linear (or even monotone) in employer fixed effects.”
Imperfect Competition, Compensating Differentials and Rent Sharing in the U.S. Labor Market (2019, background): “The absence of interactions between worker and firm effects rules out strong complementaries in production, as in Shimer and Smith (2000) and Eeckhout and Kircher (2011). The 9The analyses in Song et al.”
Sorting Multidimensional Types: Theory and Application (2017, background): “This condition is a straightforward generalization of root-supermodularity from the one-dimensional setting (Eeckhout and Kircher (2010)) to the setting with multidimensional heterogeneity.”
Workplace Heterogeneity and the Rise of West German Wage Inequality (2013, methodology): “We then fit a series of 500 Tobit models separately by year, education (5 values: missing; no qualification; apprenticeship; some post secondary; and university graduate), and 10 year age range (20-29; 30-39; 40-49; 50-60), including the following variables: age; mean log wage in other years; fracti”
Matching, sorting and wages (2011, methodology): “However, given the CES production function, f(x, b) f(x, y) if and only b y whatever x: the second source of sorting is therefore not expected to be important.”
Matching Firms, Managers, and Incentives (2015, unknown): “[19] Eeckhout, Jan and Kircher, Philipp (2010).”