This paper develops an empirical two-sided matching model with endogenous pre-investment . The model can be used to measure the impact of frictions in labour markets using a single cross-section of matched employer-employee data. The observed matching of workers to firms is the outcome of a discrete, two-sided matching process where firms with heterogeneous preferences over education sequentially choose workers according to an index correlated with worker preferences over firms. The distribution of education arises in equilibrium from a Bayesian game: workers, knowing the distribution of worker and firm types, invest in education prior to the matching process. I propose an inference procedure combining discrete choice methods with simulation . Counterfactual analysis using Canadian data shows that changes in matching frictions can lead to economically significant equilibrium changes in both inequality and the probability of investing in higher education. These effects are more pronounced when worker and firm attributes are complements in the match surplus function .
We develop inference for a two-sided matching model where the characteristics of agents on one side of the market are endogenous due to pre-matching investments . The model can be used to measure the impact of frictions in labour markets using a single cross-section of matched employer-employee data. The observed matching of workers to firms is the outcome of a discrete, two-sided matching process where firms with heterogeneous preferences over education sequentially choose workers according to an index correlated with worker preferences over firms. The distribution of education arises in equilibrium from a Bayesian game: workers, knowing the distribution of worker and firm types, invest in education prior to the matching process. Although the observed matching exhibits strong cross-sectional dependence due to the matching process, we propose an asymptotically valid inference procedure that combines discrete choice methods with simulation .
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This paper develops an empirical
We develop inference for a
R
with endogenous pre-investment
where the characteristics of agents on one side of the market are endogenous due to pre-matching investments
R
I propose an inference procedure combining
Although the observed matching exhibits strong cross-sectional dependence due to the matching process, we propose an asymptotically valid inference procedure that combines
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. Counterfactual analysis using Canadian data shows that changes in matching frictions can lead to economically significant equilibrium changes in both inequality and the probability of investing in higher education. These effects are more pronounced when worker and firm attributes are complements in the match surplus function