Workplace Heterogeneity and the Returns to Versatility

Abstract

I develop an on-the-job search model in which workers face both frictional and structural impediments to sorting. There are two key predictions. First, versatility enhances a person’s ability to sort into the most productive firms since a mismatch between job requirements and the person’s skill set is less likely to occur. Second, the larger the productivity differentials between firms, the larger the returns to versatility due to sorting and rent-share effects. This result is particularly intriguing in light of the rising productivity dispersion across firms in many countries.

Keywords: multidimensional skills, versatility, workplace heterogeneity, productivity dispersion, search and matching, on-the-job search, job mobility, skill premium, wage inequality

JEL Classification: J22, J24, J31, J62, J63, I26, E24