American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Supply, Demand, Institutions, and Firms: A Theory of Labor Market Sorting and the Wage Distribution
American Economic Review
(pp. 4137–82)
Abstract
This paper examines how workforce composition, labor demand, and minimum wage jointly determine wages through their effects on worker-task assignments, firm wage premiums, and firm-worker sorting. Using an estimated model of monopsonistic local labor markets, it finds that minimum wage hikes and labor demand shocks drove the decline in Brazilian wage inequality from 1998 to 2012. While rising educational attainment compressed skill premiums within firms, it also reallocated skilled workers to high-wage firms, limiting that shock's effect on inequality. The analysis highlights interactions among exogenous factors, showing that concurrent supply and demand changes attenuated minimum wage impacts.Citation
Haanwinckel, Daniel. 2025. "Supply, Demand, Institutions, and Firms: A Theory of Labor Market Sorting and the Wage Distribution." American Economic Review 115 (12): 4137–82. DOI: 10.1257/aer.20201293Additional Materials
JEL Classification
- J22 Time Allocation and Labor Supply
- J23 Labor Demand
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- J38 Wages, Compensation, and Labor Costs: Public Policy
- J42 Monopsony; Segmented Labor Markets
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics