-displacement occupational matching in explaining the cost of job displacement. We combine German administrative data on the work history of …

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 …