Workplace Heterogeneity and the Returns to Versatility

Abstract

In the present paper, I develop an on-the-job search model in which workers face both frictional and structural impediments to sorting. There are two key model predictions. First, versatility enhances a person’s ability to sort into the most productive firms since a mismatch between the job requirements and the person’s skill set is less likely to occur. Second, the larger the productivity differentials between the firms, the larger the returns to sorting and, hence, versatility. I test the two predictions, making use of the 1979 National Longitudinal Survey of Youth. Indeed, I find that a person’s versatility is positively associated with the ability to reallocate across employers. Furthermore, the wage returns to versatility are higher in more dispersed industries.

Keywords: versatility, multidimensionality of skills, workplace heterogeneity, productivity dispersion, search and matching, on-the-job search, inter-firm mobility, sorting, wage inequality, skill premium

JEL Classification: J00, I26, J31, J24, J63