Cyclical labor market sorting

Abstract

We consider sorting in the labor market, that is, whether high- or low-productivity workers and firms tend to match with each other, and how this varies over time using U.S. linked employer–employee data. Composition changes of workers and firms move in opposite directions over the business cycle. During and after recessions, low-rank workers are less likely to work, while the employment share of low-rank firms increases. The agreement between worker and firm ranks increases in the early stages of labor market downturns.