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IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: In labor markets with worker and firm heterogeneity, the matching between firms and workers may be assortative, meaning that the most productive workers and firms team up. We investigate this with longitudinal population-wide matched employer-emplyee data from Portugal. Using dynamic panel data methods, we quantify a firm-specific productivity term for each firm, and we relate this to the skill distribution of workers in the firm. We find that there is positive assortative matching, in particular among long-lived firms. Using skill-specific estimates of an index of search frictions, we find that the results can only to a small extent be explained by heterogeneity of search frictions across worker skill groups.

Keywords: Positive assortative matching; matched employer-employee data; productivity; skill; unobserved heterogeneity; sorting; fixed effects

JEL-codes: D24; J21; J24; J63

30 pages, November 30, 2007

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Published as

Rute Mendes, Gerard J van den Berg and Maarten Lindeboom, (2010), 'An empirical assessment of assortative matching in the labor market', Labour Economics, vol 17, no 6, pages 919-929

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