firm heterogeneity to wage inequality. Inspired by sorting theory, we infer firm productivity from estimating firm …-level production functions, taking into account that worker ability and firm productivity may interact at the match level. Using German …, driven by new matches between low-productivity firms and low-ability workers. At the top, sorting decreases, reflected in …

I study a dynamic search-matching model with two-sided heterogeneity, a production complementarity that induces labor … market sorting, and aggregate shocks. In response to a positive productivity shock, incentives to sort increase … disproportionately. Firms respond by posting additional vacancies, and the strength of the response is increasing in firm productivity …

strength of assortative matching. The basic intuition underlying our empirical strategy is that, in the presence of positive … (negative) assortative matching, good workers are more (less) likely to move to better firms than bad workers. Assuming that … matching is pervasive in the labor market. This result is in contrast with what we find from correlating the worker and firm …

Swedish manufacturing sector, we find increased assortative matching of workers in ICT (information and communication … intensity do not exhibit these sorting patterns. A labour market matching model explains the increased assortative matching in …