Working Paper: NBER ID: w31656
Authors: Job Boerma; Aleh Tsyvinski; Ruodu Wang; Zhenyuan Zhang
Abstract: We propose a new sorting framework: composite sorting. Composite sorting comprises of (1) distinct worker types assigned to the same occupation, and (2) a given worker type simultaneously being part of both positive and negative sorting. Composite sorting arises when fixed investments mitigate variable costs of mismatch. We completely characterize optimal sorting and additionally show it is more positive when mismatch costs are less concave. We then characterize equilibrium wages. Wages have a regional hierarchical structure − relative wages depend solely on sorting within skill groups. Quantitatively, composite sorting can generate a sizable portion of within-occupations wage dispersion in the US.
Keywords: sorting; wage dispersion; mismatch; optimal transport
JEL Codes: C78; D31; E0; J01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| composite sorting (C69) | wage dispersion (J31) |
| mismatch costs (L15) | sorting patterns (C69) |
| mismatch costs (L15) | wage outcomes (J31) |
| concavity of mismatch costs (D43) | sorting patterns (C69) |
| concavity of mismatch costs (D43) | wage outcomes (J31) |
| regional sorting dynamics (R12) | equilibrium wages (J31) |