Assortative Matching between workers and firms provides evidence of the complementarities or substitutes in production. The presence of complementarities is important for policies that aim to achieve the optimal allocation of resources, for example unemployment insurance. We argue that using wage data alone, it is virtually impossible to identify whether Assortative Matching is positive or negative. Even though we cannot identify the sign of the sorting, we can identify the strength, i.e., the magnitude of the cross-partial, and the associated welfare loss. We show first that the wage for a given worker is non-monotonic in the type of his employer. This is due to the fact that in a sorting model, wages reflect the opportunity cost of mismatch. We show analytically that this non-monotonicity prevents standard firm fixed effects to correlate with the true type of the firm. We then propose an alternative procedure that measures the strength of sorting in the presence of search frictions. Knowing the strength of sorting facilitates the measurement of the output loss due to mismatch.
Journal of Economic Theory, 2009, 114(2), pp. 445-471. With Manolis Galenianos. We study wage dispersion and (in)efficiency in directed search when workers can strategically apply for multiple jobs but firms can only make one offer. Go to paper
Economic Journal, 2021 131: 713-744. With Ericson, Spinnewijn &, Starc Demand for insurance can be driven by high risk aversion or high risk, and we show how to separate the two using observed market shares. Go to paper
Journal of Economic Theory, 2010/145, 1354-1385. With Jan Eeckhout. Search affects competing mechanisms: if meetings with low types reduce those of high types, price posting and market separation replace auctions. Go to paper
American Economic Review P&P, 2017, 107(5): 158–162 With J. Greenwood, C. Santos & M. Tertilt. In a quantitative equilibrium model of sexual behavior and HIV/AIDS transmission we study policies that encourage long-term partnerships. Go to paper
Econometrica. 2018 86(1): 85-132. With Jan Eeckhout. When heterogeneous firms can choose both how many and which workers to hire, we illustrate consequences for firm-size and wage inequality. Note a correction for the condition with capital: corrigendum. Go to paper
American Economic Review, 2015, Vol 105 (10), 3030-3060. With Leo Kaas. We propose a tractable competitive search model with heterogeneous multi-worker firms, and investigate firm growth and business cycles. Go to paper