Sorting Between and Within Industries: A Testable Model of Assortative Matching.

Summary We test Shimer's (2005) theory of the sorting of workers between and within industrial sectors based on directed search with coordination frictions, deliberately maintaining its static general equilibrium framework. We fit the model to sector-specific wage, vacancy and output data, including publicly-available statistics that characterize the distribution of worker and employer wage heterogeneity across sectors. Our empirical method is general and can be applied to a broad class of assignment models. The results indicate that industries are the loci of sorting--more productive workers are employed in more productive industries. The evidence confirms that strong assortative matching can be present even when worker and employer components of wage heterogeneity are weakly correlated.This work received support from National Science Foundation Grants SES-9978093, SES-0339191 and ITR-0427889. National Institute on Aging Grant AG018854. and grants from the Alfred P. Sloan Foundation. Abowd also acknowledges direct support from NSF Grants SES-0339191, CNS-0627680, SES-0922005, TC-1012593, SES-1131848, and NSF Grants SES-0339191, CNS-0627680, SES-0922005, TC-1012593, and SES-1131848.