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Supply, Demand, Institutions, and Firms: A Theory of Labor Market Sorting and the Wage Distribution

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  • Daniel Haanwinckel

Abstract

This paper examines how workforce composition, labor demand, and minimum wage jointly determine wages through their effects on worker-task assignments, firm wage premiums, and firm-worker sorting. Using an estimated model of monopsonistic local labor markets, it finds that minimum wage hikes and labor demand shocks drove the decline in Brazilian wage inequality from 1998 to 2012. While rising educational attainment compressed skill premiums within firms, it also reallocated skilled workers to high-wage firms, limiting that shock’s effect on inequality. The analysis highlights interactions among exogenous factors, showing that concurrent supply and demand changes attenuated minimum wage impacts.

Suggested Citation

  • Daniel Haanwinckel, 2023. "Supply, Demand, Institutions, and Firms: A Theory of Labor Market Sorting and the Wage Distribution," NBER Working Papers 31318, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31318
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    Cited by:

    1. Arindrajit Dube & Attila S. Lindner, 2024. "Minimum Wages in the 21st Century," NBER Working Papers 32878, National Bureau of Economic Research, Inc.
    2. Patrick M. Kline, 2024. "Firm Wage Effects," NBER Working Papers 33084, National Bureau of Economic Research, Inc.
    3. Sergio Pinheiro Firpo & Alysson Lorenzon Portella, 2024. "The labor market in Brazil, 2001–2022," IZA World of Labor, Institute of Labor Economics (IZA), pages 4412-4412, April.
    4. Lagos, Lorenzo, 2024. "Union Bargaining Power and the Amenity-Wage Tradeoff," IZA Discussion Papers 17034, Institute of Labor Economics (IZA).
    5. Daniel Haanwinckel, 2023. "Does regional variation in wage levels identify the effects of a national minimum wage?," Papers 2307.01284, arXiv.org, revised Nov 2024.

    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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