An Empirical Model of Wage Dispersion with Sorting

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.

Advance access at OUP

Bookmark the permalink.