Assortative Matching Research Articles

Algorithmic Assortative Matching on a Digital Social Medium

Algorithmic Assortative Matching on a Digital Social Medium

Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil

We measure the effects of firm policies on racial pay differences in Brazil. Non-Whites are less likely to be hired by high-wage firms, explaining about 20 percent of the racial wage gap for both genders. Firm-specific pay premiums for non-Whites are also compressed relative to Whites, contributing another 5 percent for that gap. A counterfactual analysis reveals that about two-thirds of the underrepresentation of non-Whites at higher-wage firms is explained by race-neutral skill-based sorting. Non-skill-based sorting and differential wage setting are largest for college-educated workers, suggesting that the allocative costs of discriminatory hiring and pay policies may be relatively large in Brazil. (JEL J15, J24, J31, J41, J46, J71, O15)

Screening and Signalling Non-Cognitive Skills: Experimental Evidence from Uganda

Abstract We study how employers and job seekers respond to credible information on skills that are difficult to observe, and how this affects matching in the labour market. We experimentally vary whether certificates on workers’ non-cognitive skills are disclosed to both sides of the market during job interviews between young workers and small firms in Uganda. The certificates cause workers to increase their labour market expectations, while high-ability managers revise their assessments of the workers’ skills upwards. The reaction in terms of beliefs leads to an increase in positive assortative matching and to higher earnings for workers, conditional on employment.

The distribution of COVID-19-related risks.

We document two COVID‐19–related risks, viral risk and employment risk, and their distributions across the Canadian population. The measurement of viral risk is based on the VSE COVID‐19 Risk/Reward Assessment Tool, created to assist policy‐makers in determining the impacts of pandemic‐related economic shutdowns and re‐openings. Women are more concentrated in high‐viral‐transmission‐risk occupations, which is the source of their greater employment loss over the first part of the pandemic. They were also less likely to maintain contact with their former employers, reducing employment recovery rates. Low‐educated workers face the same viral risk rates as high‐educated workers but much higher employment losses. This is largely due to their lower likelihood of switching to working from home. For both women and the low‐educated, existing inequities in their occupational distributions and living situations have resulted in them bearing a disproportionate amount of the risk emerging from the pandemic. Assortative matching in couples has tended to exacerbate risk inequities.

Liquidity Provision and Co-insurance in Bank Syndicates

<ns2:p>We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures. We develop a simple model and simulate the liquidity and insurance capacity of the banking network. We find that the liquidity capacity of large banks has significantly increased following the introduction of liquidity regulation, and that the liquidity co-insurance function in loan syndicates is economically important. We also find that borrowers with higher reliance on credit lines in their liquidity management have become more likely to obtain credit lines from syndicates with higher liquidity. The assortative matching on liquidity characteristics has strengthened the role of banks as liquidity providers to the corporate sector.</ns2:p>

Global ownership patterns

To analyze multinationals’ market entry, I assemble a new dataset of cross-border mergers and acquisitions (M&A) for 1985–2019, with sales for the parent and target firms. Seven main facts emerge: (1) the number of acquisitions per parent has a Pareto distribution; (2) the number of different industries and countries entered per parent has a similarly shaped Pareto distribution; (3) parents entering unpopular industries or countries are large, as measured by global sales; (4) at the parent level, the number of industries and the number of countries entered is highly correlated; (5) the percent of zero parent-level M&A flows across destination industry-countries is 99%, and obeys a gravity relation; (6) single-industry and single-country parents are very prevalent (around 50%), but their sales share is low (around 10%); (7) there is positive assortative matching between parent and target sales. A balls-and-bins model (à la Armenter and Koren, 2014) quantitatively matches many of the facts due to the sparsity of M&A data. Three unmatched facts provide information for future theories: parent entry by market popularity, single-market multinational parents’ prevalence and sales share, and assortative matching between parent and target sales.

Wealth and the principal–agent matching

AbstractI study the role the agent's wealth plays in the principal–agent matching with moral hazard and limited liability. I consider wealth and talent as the agent's type and size as the firm's (principal's) type. Wealthier agents match with bigger firms, when talent is homogeneous among them, whereas for equally wealthy agents, more talented agents will match with bigger firms. I describe economic conditions over types such that pairs of higher types will write contracts in which the agent gets more than the limited liability rents. Finally, I write conditions on wealth for assortative matching in talent to hold.

Preference evolution in different matching markets

We examine preference evolution under different matching market arrangements when preferences are influenced by parental preferences and own choices. Multiple stable equilibria arise under sufficiently random matching, but a unique equilibrium exists under sufficiently assortative matching. Mathematically, the dynamical system exhibits pitchfork bifurcation as the degree of sorting varies. Economically, using market-differential evolutionary trajectories after transitory and permanent shocks, we discuss the model’s implications on (i) the effects of marriage-market structure on female labor force participation such as in the United States and Europe after World Wars, (ii) the persistence of gender norms in developing countries with prevalent arranged marriages such as India, and (iii) the long-run impact of a short-run biased sex ratio on gender norms such as in Australia.

Incentives, ability and disutility of effort

We generalize the disutility of effort function in the linear-Constant Absolute Risk Aversion (CARA) pure moral hazard model. We assume that agents are heterogeneous in ability. Each agent’s ability is observable and treated as a parameter that indexes the disutility of effort associated with the task performed. In opposition to the literature (the “traditional” scenario), we find a new, “novel” scenario, in which a high-ability agent may be offered a weaker incentive contract than a low-ability one, but works harder. We characterize the conditions for the existence of these two scenarios: formally, the “traditional” (“novel”) scenario occurs if and only if the marginal rate of substitution of the marginal disutility of effort function is increasing (decreasing) in effort when evaluated at the second-best effort. If, further, this condition holds for all parameter values and matching is endogenous, less (more) talented agents work for principals with riskier projects in equilibrium. This implies that the indirect and total effects of risk on incentives are negative under monotone assortative matching.

Fluctuations in the wage gap between vocational and general secondary education: lessons from Portugal

We document and analyse the wage gap between vocational and general secondary education in Portugal between 1994 and 2013. As Portuguese workers have been educated in different school systems, we have to distinguish between birth cohorts. Analysing the wage gaps within cohorts, we find no support for either the human capital prediction of crossing wage profiles or the hypothesis that general graduates increasingly outperform vocational graduates in late career. We discover that the lifecycle wage profiles have shifted over time. We link the pattern of shifting cohort profiles to changes in the school system and in the structure of labour demand. We conclude that assessing the relative value of vocational education requires assessing how the vocational curriculum responds to changes in economic structure and technology. We show that the decline in assortative matching between workers and firms has benefited vocationally educated workers.

Peers, Buccaneers and Downton Abbey: An economic analysis of 19th century British aristocratic marriages

The decline in late 19th century agricultural prices, by reducing the incomes of aristocratic landed estates and of non-aristocratic landed families, led to richly dowried American heiress brides being substituted for brides from landed families in British aristocratic marriages. This reflected a wider 19th century phenomenon of aristocratic substitution of foreign brides for landed brides and the substitution of daughters of British businessmen for daughters of landed families when agricultural prices declined. The results are consistent with positive assortative matching with lump-sum transfers (dowries), where landowning family dowries are cash constrained in periods of agricultural downturn.

Strategic Bidding with Quotas

This paper analyzes the effects of market power on the performance of matching markets with slot-specific transfers. I find that strategic wage posting in such markets does, in general, not result in assortative matching since firms with higher quotas—and thus relatively more market power—pay on average lower wages than their competitors due to a lack of within-firm rivalry. If highly productive firms command market power, the resulting welfare loss may be substantial. Moreover, firms typically do not gain from wage discrimination. Thus, strategic wage posting is compatible with the absence of entry-level wage variation within firms.

Matching for Strategic Organizations: Theory and Empirics from Internal Labor Markets

Organizations have recently embraced the tools of market design to address job assignment and internal mobility problems. However, matching objectives within an organization are distinct from those in other settings. We model firm-optimal job assignments and the tradeoffs of using different matching institutions. Our results illuminate where preference-respecting mechanisms (such as those developed for stable matching) perform well for organizational purposes. We then turn to a large organization's internal labor market for empirics. We find that optimal matching is highly productive. Using the organization's preferred metric, the optimal match is 36% more productive than randomly assigned matches within job categories. However, it achieves this through negative assortative matching, placing a majority of workers and managers with assignments they did not rank. By contrast, preference-based matches (using deferred acceptance) are much less productive. They are only 3% more valuable to the firm than the average random match, 24% less than the firm's optimal, and feature positive assortative matching. However, workers and managers are significantly more likely to be assigned to a preferred partner; only 25% are assigned to a match they did not rank.

Persistent Blessings of Luck: Theory and an Application to Venture Capital

Abstract Persistent performance in venture capital is routinely interpreted as evidence for skill. We present a dynamic model of delegated investment with endogenous fund heterogeneity and deal flow, which generates performance persistence without skill differences and predicts mean reversion in long-term performance. Investors working with multiple funds use contingent payments and tiered contracts to induce proper project nurturing and managerial effort. Successful funds receive continuation contracts that tolerate investment failure and encourage innovation, and subsequently finance entrepreneurs through a path-dependent assortative matching favoring incumbents. Recent empirical findings corroborate the model’s general implications, and the economic mechanisms are robust to short-term contracting, endogenous bargaining, and double moral hazard issues.

Globalization and the Concentration of Talent

We analyze how (amplified) superstar effects impact the allocation of talent across competing teams in large matching markets. We show that a convex transformation of payoffs promotes positive assortative matching. This result holds under minimal assumptions on how skills translate into competition outcomes and how competition outcomes translate into payoffs. Our reduced-form analysis covers a wide range of special cases from the literature that micro-found convex transformations of payoffs through diverse mechanisms including globalization, technological change, urban agglomeration, and inter-occupational spillovers.

Assortative Matching of Tourists and Destinations: Agents or Algorithms?

We propose that assortative matching, a well-established paradigm in other industry sectors and academic disciplines, can underpin the concept of destination matching. This provides a new foundation to integrate research concepts and terminology in destination marketing and destination choice. We argue that the commercial tourism industry already applies destination matching approaches, with three historical phases. Initially, matching of tourists and destinations relied on the tacit expertise of specialist agents. This still applies in specialist subsectors. For generalist travel and accommodation, human agents were partially replaced by online travel agents, OTAs, which are customised algorithms operating only in the travel sector. These still exist, but their share price trends suggest decreasing significance. Currently, automated assortative algorithms use multiple sources of digital data to push appealing offers to potential purchasers, across all retail sectors. Digital marketing strategies for tourism products, enterprises, and destinations are now just one category of generalised product–purchaser matching, using entirely automated algorithms. Researchers do not have access to proprietary algorithms, but we can identify which components they incorporate by analysing their underlying patents. We propose that theories of destination marketing and choice need to reflect these recent and rapid real-world changes via deliberate analysis of destination matching.

Marital Sorting and Cross-Country Differences in Intergenerational Earnings Persistence

In a real economy, decisions on investments in child human capital of children are made by families rather than by atomistic parents as is typically assumed in the literature. This paper incorporates family formation into an otherwise standard dynastic framework with human capital accumulation. The study finds that accounting for differences in taxation and education policies between the U.S. and 10 OECD countries is sufficient to replicate cross-country variations in the degree of assortative matching and its positive correlation with the persistence of intergenerational earnings. Positive assortative matching is crucial to a model’s ability to generate realistic levels of intergenerational earnings correlation observed in the data.

Bureaucrat Allocation in the Public Sector: Evidence from the World Bank

Abstract The allocation of bureaucrats across tasks constitutes a pivotal instrument for achieving an organisation’s objectives. In this paper, I measure the performance of World Bank bureaucrats by combining the universe of task assignment with an evaluation of task outcome and bureaucrat CVs. I introduce two stylised facts. First, bureaucrat performance correlates with task features and individual characteristics. Second, there exists a negative assortative matching between high-performing bureaucrats and low-performing countries. In response to natural disasters, which may further weaken countries’ performance, I observe that low-performing countries receive an additional allocation of high-performing bureaucrats. I discuss various interpretations of these findings.

Gender in Start-up Financing: Evidence from Equity Crowdfunding

It is well known that start-ups with female founders often raise less money than their male counterparts; the question is, what drives this? We exploit the unique features of equity crowdfunding to disentangle the choices made by entrepreneurs and investors. We find that female teams set lower fundraising goals, are equally likely to achieve their minimum goal, and end up raising significantly less. Guided by a simple theory of optimal fundraising, we find that assortative matching (where investors prefer to invest in their own gender) can explain some but not all of the female funding gap. One interesting finding is that female start-ups wait longer before closing their campaigns, suggesting that they want to raise more than what they originally asked for. Overall, the analysis suggests that female founders ask for less, get less, but do not necessarily want less.

Cast apart by the elites: how status influences assortative matching in industrial clusters

ABSTRACT In this article we investigate how status considerations influence inter-firm knowledge transfer in industrial clusters. Using evidence of a highly dynamic wine cluster and network analysis methods of Stochastic Actor-Oriented Modelling, we find that status considerations drive assortative matching in the formation of ties within a cluster. This means that low-status firms are cast from the ‘circles that count’, while high-status firms are likely to interact with similar others. Far from being an equal space of knowledge sharing, some clusters may instead be spaces of social hierarchies and elitist ties.