Research

We study how firms impact the dynamics of earnings inequality. Using linked employer-employee-job title data from Portugal, we show that the compression of firm pay premiums accounted for 86 percent of the large decline in wage inequality over the past decades despite an increase in worker heterogeneity. A decline in job title heterogeneity and a decreasing concentration of high-paying jobs in high-quality firms account for the remainder of this decline. The compression in firm pay premiums resulted from two factors: (i) a decrease in the pay gap between otherwise similar workers working in more or less productive firms, and (ii) declining returns to working with highly skilled co-workers. Using a novel mediation analysis, we show that the effects of firm productivity and skill composition on wage inequality are broader than previously estimated using conventional AKM variancedecompositions. While previous studies assume that firm pay policies fully mediate the relationship between firm characteristics and wage inequality, we show that 76 percent of firm productivity affects wage inequality through factors other than firm pay premiums, such as worker quality and job title pay premiums.

The role of firms in adjusting workforce extends beyond merely responding to crises; however, other contributing factors remain incompletely understood. This study provides new insights into the determinants of workforce adjustments. Analyzing data from a decade (2007-2018) of medium and large French firms, we investigate how workforce composition and financial indicators drive workforce dynamics. We analyze three main outcomes. First, we examine the probability of mass layoffs within the framework of the french legislation ‘Plan de Sauvegarde de l’Emploi'- PSE. Second, we explore how these factors influence firm size, and finally, we assess their effects across different job growth rates. Our findings provide a comprehensive view of how workforce characteristics and financial indicators shape both expansion and contraction in firm employment, offering policymakers insight into the key factors affecting workforce adjustments.

This paper contests the traditional view of layoffs as solely reactive to negative economic conditions. Using survey and administrative French data, we provide evidence on how firms strategically utilize mass layoffs to restructure their workforce composition. First, we investigate if firms use layoffs to shift their skill requirements. Analyzing both layoff and matched non-layoff firms, we find firms significantly increase the requirements for social skills while decreasing dependence on manual and cognitive skills requirements after layoffs. This suggests a premeditated reshaping of the workforce instead of a cost￾cutting practice. Secondly, we explore the factors influencing selection into displacement during layoffs. We focus on three key aspects: skills mismatch, relative worker quality, and perceived monetary cost. Our findings highlight the significant role of skill mismatch and worker quality in determining dismissal, suggesting firms actively select based on strategic needs. By revealing the strategic nature of mass layoffs and their impact on skills composition and worker selection, this paper offers valuable insights into the understanding of workforce adjustment. Such insights are relevant for policy design.

This paper gives a new answer to an old question in labor economics, ``Who matches with whom?'', by introducing a setting where firms and workers are different in many dimensions and we allow workers to be over and under qualified for the jobs they end up occupying. I present a random search model with two sided multidimensional heterogeneity in which firms choose and post a wage with commitment i.e. maintaining the posted wage, independent of the productivity of the new worker. Posted wages determine the set of acceptable jobs for each worker and a unique applicants pool for each firm. The composition of these sets varies in size and composition across workers and firms. The optimal posted wage level takes into consideration the requirements of each firm and the characteristics of the applicants pool. In equilibrium, sorting is assortative but mismatches can occur across all skills dimensions. Using French data on workers observed skills and matches, I estimate the structural parameters associated with the model for France. I find that the disutility of non cognitive skills is higher when mismatched, while employers value more highly good matches on cognitive skills. I also find that the number of dimensions plays an important role, since it is another source for frictions.

This paper models the labor market matching process when skills are multidimensional and workers are naive about the strategic behavior of their competitors. Using supply and demand side data on multidimensional skills from Colombia, the paper numerically solves for the equilibrium allocation of workers to jobs that solves the naive worker problem and finds that the allocation is inefficient, in that workers over-weight job availability at the expense of matching to jobs for which they are over-qualified, leaving less qualified workers to match to jobs with higher skill demands. Three counterfactual simulations suggest training of long-term unemployed can be the most effective at improving the efficiency of the allocation of workers to jobs by both making them better matches for medium skilled jobs and by reducing the likelihood that high skilled individuals will be hired for jobs for which they are overqualified, providing them an incentive to apply increasingly for high-skilled jobs.