Identifying Sorting in Practice
American Economic Journal: Applied Economics
44 Pages Posted: 8 Apr 2019
Date Written: March 24, 2018
We propose a novel methodology to uncover the sorting pattern in labor markets. We identify the strength of sorting solely from a ranking of firms by profits. To discern the sign of sorting, we build a noisy ranking of workers from wage data. Our test for the sign of sorting is consistent even with noisy worker rankings. We apply our approach to a panel dataset that combines social security earnings records with detailed financial data for firms in the Veneto region of Italy. We find robust evidence of positive sorting. The correlation between worker and firm types is about 52%.
Keywords: assortative matching, worker mobility, profits, matched employer-employee data
JEL Classification: J6, J31, L2
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