Supply, Demand, Institutions, and Firms: A Theory of Labor Market Sorting and the Wage Distribution
This paper builds a general equilibrium framework with firm and worker heterogeneity, monopsony power, and task-based production to quantify the long-run effects of education, labor demand shocks, and minimum wage. I take it to Brazilian data and find that, between 1998 and 2012: (i) supply and demand shocks increased the sorting of high-wage workers to high-wage firms; (ii) endogenous entry of high-wage firms boosted the effect of rising schooling attainment on mean log wages by 33%; (iii) the impacts of the rising minimum wage on inequality and sorting would have been much stronger without the co-occurring supply and demand shocks.
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