Working Paper: NBER ID: w15546
Authors: John M. Abowd; Francis Kramarz; Sébastien Pérez-Duarte; Ian Schmutte
Abstract: We estimate a structural model of job assignment in the presence of coordination frictions due to Shimer (2005). The coordination friction model places restrictions on the joint distribution of worker and firm effects from a linear decomposition of log labor earnings. These restrictions permit estimation of the unobservable ability and productivity differences between workers and their employers as well as the way workers sort into jobs on the basis of these unobservable factors. The estimation is performed on matched employer-employee data from the LEHD program of the U.S. Census Bureau. The estimated correlation between worker and firm effects from the earnings decomposition is close to zero, a finding that is often interpreted as evidence that there is no sorting by comparative advantage in the labor market. Our estimates suggest that this finding actually results from a lack of sufficient heterogeneity in the workforce and available jobs. Workers do sort into jobs on the basis of productive differences, but the effects of sorting are not visible because of the composition of workers and employers.
Keywords: Labor Market; Assortative Matching; Coordination Frictions
JEL Codes: E24; J21; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| insufficient heterogeneity in the workforce and job types available (J29) | estimated correlation between worker and firm effects in labor earnings is close to zero (J79) |
| workers sort into jobs based on productive differences (J29) | estimated correlation between worker and firm effects in labor earnings is close to zero (J79) |
| coordination friction model (C69) | sorting of workers into jobs based on unobservable ability and productivity differences (J29) |
| composition of workers and employers (J59) | obscured productive sorting (C69) |