Abstract
Why do firms pay different wages? Empirical evidence suggests the presence of substantial differences in firm pay controlling for worker skill. Moreover, these differences are uncorrelated with skills, indicating the absence of sorting. I show that the face value interpretation is inconsistent with evidence on coworker segregation. I interpret the evidence by applying a sorting model and show that the correlation is biased. I identify nonmonotonicities in wages as the reason for this bias and show that a measure of worker-coworker sorting is more accurate. By calibrating the model to US data, I confirm that the model matches many job market characteristics.
Original language | English |
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Pages (from-to) | 313-346 |
Journal | Journal of Political Economy |
Volume | 126 |
Issue number | 1 |
Early online date | 11 Jan 2018 |
DOIs | |
Publication status | Published - Feb 2018 |