Supply and Demand in a Two-Sector Matching Model New Draft [PDF] [Online Appendix] [Julia Code]
This paper explores an extension of Becker’s (1973) matching model to two sectors and two skill dimensions. I provide comparative statics for changes in the marginal distribution of skill and in skill interdependence, as well as in the distribution of firms’ productivity. Vertical differentiation of workers proves to be of crucial importance for sorting, and also, as a result, for shock transmission. Further, as each sector uses a different dimension of skill, increases in skill interdependence imply a fall in the overall supply of talent. In the symmetric case, at least, this results in lower output and higher wage inequality.
Occupational Sorting and the Structure of Status
This paper investigates the impact of social status on occupational sorting in a two-sector matching framework. Talent is two-dimensional and thus status is not a zero-sum game; it depends both on occupational prestige and within-sector rank (local status). I show that the weights with which these two components enter — the structure of status — play a crucial role for the way in which agents self-select into sectors and argue that it is likely that these weights differ across occupations. The more important the individual components of status in a sector, or the less important the collective component, the better the agents who join that industry, which has important implications for total payoffs, wage levels and inequality, and profits. I also show that although the stable assignment of agents to sectors is typically inefficient, this is driven by the distortion of relative status rewards caused by local status and occupational prestige, rather than by status concerns per se. Finally, I demonstrate that the ranking of occupations with respect to prestige depends not only on skill intensity, but also on the spread of status rewards in each sector.