Better Workers Move to Better Firms: A Simple Test to Identify Sorting

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu We propose a simple test that uses information on workers' mobility, wages and firms' profits to identify the sign and strength of assortative matching. The basic intuition underlying our empirical strategy is that, in the presence of positive (negative) assortative matching, good workers are more (less) likely to move to better firms than bad workers. Assuming that agents' payoffs are increasing in their own types, our test exploits within-firm variation on wages to rank workers by their types and firm profits to rank firms. We use a panel data set that combines social security earnings records for workers in the Veneto region of Italy with detailed balance-sheet data for firms. We find robust evidence that positive assortative matching is pervasive in the labor market. This result is in contrast with what we find from correlating the worker and firm fixed effects in standard Mincerian wage equations. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SJEL Classification: J6, J31, L2

High wage workers and high wage peers

“…Trade union contracts specify non-binding minimum wages at the industry level. Although these are relevant for bargaining inside the firm, they only represent an industry-specific floor for total compensation, and in Veneto compensation are almost always higher, as discussed in Bartolucci and Devicienti (2012), who find for the same population that almost all employees earn a wage premium, and that the median wage premium is 24 percent.…”

Sorting through Search and Matching Models in Economics

“…To briefly touch on the analogous question here, Adachi (2003) assumes cloning and impatience and shows that, for a general match output function f , the set of stationary equilibria converges to the set of stable matches as frictions vanish. 39 See also the related work by Teulings and Gautier (2004), De Melo (2009), Bagger and Lentz (2014), Lamadon et al (2013), and Bartolucci and Devicienti (2013).…”

Gender Differences in Sorting

“…Abowd, Kramarz, and Margolis (1999), henceforth AKM, used the correlation between workers' and firms' fixed effects derived from wage equations. Bartolucci and Devicienti (2013) addressed this issue by exploiting withinfirm variation in wages to rank worker types (within firms) and profits to rank firms. In other words, after conditioning on the observable worker and firm effects, when a worker moves to a new firm, she draws at random from the existing firms in the economy.…”

“…In this paper, we use the methodology of Bartolucci and Devicienti (2013) to rank workers and firms because it allows us to analyze gender differences in sorting both within and across firms under the assumption that workers care mostly about wages. Later in the article we will show that our main results do not depend on this assumption, as implementing several other approaches to measure workers' ranks provides similar findings.…”

“…To detect sorting patterns, we apply and extend the methodology proposed by Bartolucci and Devicienti (2013) to study both internal and external career advancements across genders. In particular, (1) we exploit within-firm variation in wages to rank workers within firms and conditional on observables.…”