Using a matched firm-worker dataset, we show both theoretically and empirically that positive assortative matching between firms and workers leads to an underestimation of the absolute value of wage elasticity of labor demand

This paper analyzes the problem of matching heterogeneous agents in a Bayesian learning model. One agent gives a noisy signal to another agent, who is responsible for learning. If production has a strong informational component, a phase of cross-matching occurs, so that agents of low knowledge...