An empirical model of wage dispersion with sorting

Jesper Bagger, Rasmus Lentz

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

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
JournalThe Review of Economic Studies
Volume86
Issue number1
Early online date11 May 2018
DOIs
Publication statusPublished - Jan 2019

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