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Labor Market Sorting in Germany
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Labor Market Sorting in Germany

Author

Listed:
  • Bastian Schulz

    (University of Munich and Ifo Institute)

  • Benjamin Lochner

    (University Erlangen-Nuremberg, Institute for Employment Research)

Abstract

This paper analyzes how workers are allocated to jobs in Germany. Our main contribution is to show how labor market sorting has evolved over time across worker types and how this developments are related to wages and wage inequality. We show direct empirical evidence that wages are not necessarily increasing in the productivity of the firm a worker is matched with. This feature of the data is predicted by theoretical models of labor market sorting (Shimer and Smith, 2000; Eeckhout and Kircher, 2011), but is at odds with two-way fixed-effect models (Abowd et al., 1999), the most common empirical tool to analyze wage dispersion. We use a structural search model and the identification procedure proposed by Hagedorn et al. (2014) to empirically identify worker and firm rankings as well as the bivariate density of matches in Germany. We compute rank correlations and find that low-type workers have become increasingly sorted into low-type firms in our period of observation (1998-2008), especially out of unemployment. Sorting of high-type workers into high-type firms has, if anything, slightly decreased during our period of observation.

Suggested Citation

  • Bastian Schulz & Benjamin Lochner, 2016. "Labor Market Sorting in Germany," 2016 Meeting Papers 1298, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1298
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    References listed on IDEAS

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    Cited by:

    1. Winkler, Erwin, 2020. "Diverging paths: Labor reallocation, sorting, and wage inequality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224535, Verein für Socialpolitik / German Economic Association.
    2. Bauer, Anja & Lochner, Benjamin, 2020. "History dependence in wages and cyclical selection: Evidence from Germany," Labour Economics, Elsevier, vol. 67(C).
    3. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    4. Alexey Gorn, 2021. "The Role of Headhunters in Wage Inequality: It's All about Matching," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 309-346, April.

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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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