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Cyclical Labor Market Sorting

Author

Listed:
  • Leland Crane

    (Federal Reserve Board)

  • Henry Hyatt

    (US Census Bureau)

  • Seth Murray

    (University of Maryland)

Abstract

We consider sorting in the labor market, that is, whether high or low productivity workers and firms tend to match with each other, and how this varies cyclically using U.S. matched employer-employee data for recent decades. Although there is considerable disagreement in the nature and extent of assortative matching among different methods for ranking workers and firms, we consistently find that the productivity composition of workers and firms moves in opposite directions over the business cycle. During and after recessions, low-productivity workers leave the labor market, while low-productivity firms gain as a share of employment, so positive assortative matching is greatest in magnitude in the early stages of economic contractions. These results are consistent with differences between workers, rather than firms, driving the value of output, which we demonstrate using a model of labor market search.

Suggested Citation

  • Leland Crane & Henry Hyatt & Seth Murray, 2018. "Cyclical Labor Market Sorting," 2018 Meeting Papers 939, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:939
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    References listed on IDEAS

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    1. Cynthia L. Doniger, 2019. "Do Greasy Wheels Curb Inequality?," Finance and Economics Discussion Series 2019-021, Board of Governors of the Federal Reserve System (U.S.).
    2. Cynthia L. Doniger, 2021. "The Ways the Cookie Crumbles: Education and the Margins of Cyclical Adjustment in the Labor Market," Finance and Economics Discussion Series 2021-019, Board of Governors of the Federal Reserve System (U.S.).

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