CREAT: Census Research Exploration and Analysis Tool

Firm Dynamics and Assortative Matching

May 2014

Written by: Leland D. Crane

Working Paper Number:

CES-14-25

Abstract

I study the relationship between firm growth and the characteristics of newly hired workers. Using Census microdata I obtain a novel empirical result: when a given firm grows faster it hires workers with higher past wages. These results suggest that productive, fast-growing firms tend to hire more productive workers, a form of positive assortative matching. This contrasts with prior research that has found negligible or negative sorting between workers and firms. I present evidence that this difference arises because previous studies have focused on cross-sectional comparisons across firms and industries, while my results condition on firm characteristics (e.g. size, industry, or firm fixed effects). Motivated by the empirical findings I develop a search model with heterogeneous workers and firms. The model is the first to study worker-firm sorting in an environment with worker heterogeneity, firm productivity shocks, multi-worker firms, and search frictions. Despite this richness the model is tractable, allowing me to characterize assortative matching, compositional dynamics and other properties analytically. I show that the model reproduces the positive firm growth-quality of hires correlation when worker and firm types are strong complements in production (i.e. the production function is strictly log-supermodular).

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Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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:
endogeneity, employ, employed, labor, job, employment growth, heterogeneous, heterogeneity, hiring, workforce, worker, hire, matched, matching

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:
University of Maryland, Employer Identification Numbers, Longitudinal Employer Household Dynamics, AKM

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