The Anatomy of Sorting – Evidence from Danish Data
Abstract/Contents
- Abstract
- In this paper, we use the finite mixture approach of Bonhomme et al. (2019) and Abowd et al. (2019) to estimate a model of wages and employment mobility with two-sided heterogeneity that we particularize in two ways. First, we develop a new Classification Expectation-Maximization algorithm for estimation to improve the classification of firms into a finite number of groups. Second, we impose a parametric structure on workers’ transition probabilities for improved precision and interpretability. The major contribution of this research is showing that the process by which workers match with firms is convoluted and one cannot understand its sources by studying wages alone. Extending the study of sorting beyond the correlation of wage fixed effects, we also employ a broader notion of sorting, the mutual information (MI), which can accurately represent the dependence between worker and firm latent types independently of their effect on wages. Using Danish data from the years 19872013, we find that it is important to allow for flexible interactions between job tenure, labor experience, and worker and firm types in both mean wages and employment mobility. Sorting is moderately increasing over time wherein some sorting is positive on wages. Through the lens of MI, we find increased importance of non-wage amenities as workers age and select into long tenure relationships. The job offer arrival processes while employed and unemployed are key drivers of sorting during early career stages. However, as workers age job preferences become the dominant determinant of matching and give rise to a positive age trend in sorting. The positive age trend in sorting shows in the MI index but is not noticeably apparent in the wage fixed effect correlation. It is, hence, important to allow for both non-wage factors and non-linearity in matching when measuring sorting.
Description
| Type of resource | text |
|---|---|
| Date created | August 31, 2021 |
Creators/Contributors
| Author | Lentz, Rasmus |
|---|---|
| Author | Piyapromdee, Suphanit |
| Author | Robin, Jean-Marc |
| Organizer of meeting | Hurst, Erik |
| Organizer of meeting | Kehoe, Patrick |
| Organizer of meeting | Pastorino, Elena |
Subjects
| Subject | heterogeneity |
|---|---|
| Subject | wage distributions |
| Subject | employment and job mobility |
| Subject | mutual information |
| Subject | finite mixtures; |
| Subject | EM algorithm |
| Subject | classification algorithm |
| Subject | sorting |
| Subject | decomposition of wage inequality |
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
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- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Lentz, R., Piyapromdee, S., and Robin, J. (2022). The Anatomy of Sorting – Evidence from Danish Data. Stanford Digital Repository. Available at https://purl.stanford.edu/dk533bd1900
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SITE Conference 2021
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