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 versatility due to sorting effects and rent-sharing effects. This result is particularly intriguing in light of the rising productivity dispersion across firms in many countries.

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