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Working paper 735
Xiaoming Cai, Pieter Gautier, Ronald Wolthoff, "Search, Screening and Sorting", 2022-09-06
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Abstract: We investigate the effect of search frictions on labor market sorting by constructing a model which is in line with recent evidence that employers collect a pool of applicants before interviewing a subset of them. In this environment, we derive the necessary and sufficient conditions for sorting in applications as well as in matches. We show that positive sorting is obtained when production complementarities outweigh a force against sorting measured by a (novel) quality-quantity elasticity. Interestingly, we find that the required degree of production complementarity for positive sorting can be increasing in the number of interviews: for sorting to hold for any distribution of workers and firms, it ranges from square-root-supermodularity if each firm can interview a single applicant to log-supermodularity if each firm can interview all its applicants.

Keywords: sorting; complementarity; search frictions; information frictions; heterogeneity

JEL Classification: D82; D83; E24