Wage sorting trends

► We model wage sorting as the correlation between the worker and firm fixed effect from a wage equation. ► The cross-sectional correlation is increasing from a low −0.07 in 1981 to a high 0.14 in 2001. ► This finding is not driven by changes in the workforce in terms of gender, age, and education. ► The increasing wage sorting is in part driven by the exit/entry of workers and by worker reallocation. ► The increasing sorting comprises 41% of the increase in the std. dev. of log wages