A Formal Test of Assortative Matching in the Labor Market

40 Pages Posted: 1 Dec 2009

See all articles by John M. Abowd

John M. Abowd

U.S. Census Bureau; Cornell University Department of Economics; Labor Dynamics Institute; School of Industrial and Labor Relations; NBER (on leave); CREST; IZA Institute of Labor Economics

Francis Kramarz

Independent

Sebastien Perez-Duarte

European Central Bank (ECB); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Ian M. Schmutte

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2009

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.

JEL Classification: J31, J21, E24

Suggested Citation

Abowd, John Maron and Kramarz, Francis and Perez-Duarte, Sebastien and Schmutte, Ian M., A Formal Test of Assortative Matching in the Labor Market (November 1, 2009). US Census Bureau Center for Economic Studies Paper No. CES-WP- 09-40, Available at SSRN: https://ssrn.com/abstract=1515695 or http://dx.doi.org/10.2139/ssrn.1515695

John Maron Abowd

U.S. Census Bureau ( email )

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Cornell University Department of Economics ( email )

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Labor Dynamics Institute ( email )

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School of Industrial and Labor Relations ( email )

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NBER (on leave) ( email )

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CREST ( email )

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IZA Institute of Labor Economics

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Germany

Francis Kramarz

Independent

Sebastien Perez-Duarte

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

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Malakoff Cedex, 1 92245
France

Ian M. Schmutte (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

HOME PAGE: http://people.terry.uga.edu/schmutte/

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