Working Paper: CEPR ID: DP16295
Authors: Xiaoming Cai; Pieter A. Gautier; Ronald Wolthoff
Abstract: We investigate the effect of search frictions on labor market sorting by constructing a model which is in line with recent evidence that employers collect a pool of applicants before interviewing a subset of them. In this environment, we derive the necessary and sufficient conditions for sorting in applications as well as matches. We show that positive sorting is obtained when production complementarities outweigh a force against sorting measured by a quality-quantity elasticity. Interestingly, we find that the required degree of production complementarity for positive sorting is increasing in the number of interviews: it ranges from square-root-supermodularity if each firm can interview a single applicant to log-supermodularity if each firm can interview all its applicants.
Keywords: sorting; complementarity; search frictions; information frictions; heterogeneity
JEL Codes: C78; D82; D83; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of interviews (C83) | positive sorting (C69) |
| production complementarities (E23) | positive sorting (C69) |
| number of interviews (C83) | required degree of production complementarity (D20) |
| quality-quantity elasticity (L15) | forces against sorting (C69) |