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Author: Lopes De Melo, Rafael
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1. Lopes De Melo, Rafael
Sorting in the Labor Market: Theory and Measurement
Ph.D. Dissertation, Department of Economics, Yale University, 2009
Cohort(s): NLSY79
Publisher: Department of Economics, Yale University
Keyword(s): Brazil, Brazilian; Cross-national Analysis; Educational Attainment; Firms; Heterogeneity; Job Productivity; Job Turnover; RAIS - Relação Anual de Informações Sociais; Skilled Workers; Survey of Income and Program Participation (SIPP); Transition, Job to Job; Wage Theory; Wages

Permission to reprint the abstract has not been received from the publisher.

Are more skilled workers employed by more productive firms? Are complementarities important in production? I analyze the assortative matchup between heterogeneous firms and workers in the labor market. Sorting patterns are important for two reasons: inefficiency and inequality. First, if there are complementarities in production, the equilibrium allocation assigns the most skilled workers to the most productive firms, and vice-versa. If frictions perturb this assignment, the economy operates suboptimally. In this case, second, sorting can work as a mechanism to increase inequality and decrease mobility: the most skilled workers earn more because they are more skilled and also because they work for the most productive firms. In such an economy, low skilled workers have limited opportunities for career progress, since the top firms will not hire them.

In the first chapter, I provide four contributions to the measurement of sorting. First, I introduce a frictional sorting model to show that the standard empirical method used to measure sorting in the labor market can be biased in favor of not detecting sorting. My second contribution is to isolate the economic mechanism responsible for this bias. Thirdly, I propose an alternative method to detect sorting that is immune from this bias. Finally, I apply both methods to a novel Brazilian matched employer-employee dataset, RAIS. I confirm the absence of sorting when using the first method, whereas the second reveals strong sorting, which, according to the model, suggests that sorting is widespread in the labor market.

In the remaining chapters, I investigate the dynamic relationship between wages and turnover in the equilibrium of frictional economies. In the second chapter, I evaluate the ability of several models in the job-search literature to explain a robust and pervasive fact that, I document from SIPP data: real wage cuts upon job-to-job transitions are more frequent that for those remaining in one job. The results suggest that, highly educated workers accept wage cuts in exchange for better prospects on the new job, while for low-educated these cuts reflect preemptive quits. In the third chapter, I structurally estimate a model of match-specific learning, using data from the NLSY-79, in order to jointly explain the dynamics and inequality of wages.

Bibliography Citation
Lopes De Melo, Rafael. Sorting in the Labor Market: Theory and Measurement. Ph.D. Dissertation, Department of Economics, Yale University, 2009.