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.
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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
International Economic Review, 2012, Vol 53 (1), 1-21. With M. Galenianos. We study a finite directed-search wage posting game among heterogeneous firms (allowing for risk aversion, moral hazard,…), including limit theorems. 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
Journal of Monetary Economics, 2008, Vol. 55, pp. 1054-1066. With M. Galenianos. We characterize price dispersion and welfare in a monetary model with private information: inflation is regressive even though the rich hold more money. Go to paper
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