TY  - RPRT
        AU  - Bagger, Jesper
AU  - Elholm, Malthe
AU  - Maibom, Jonas
AU  - Vejlin, Rune Majlund
        TI  - Unpacking the Wage Sorting Trend
        PY  - 2026/Mar/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 18502
        UR  - https://www.iza.org/publications/dp18502
        AB  - Using 1980--2019 Danish matched employer-employee data, we unpack the rise in wage sorting - the correlation between worker and firm wage fixed effects (Abowd et al., 1999) - from 0.06 to 0.18. The rise is driven entirely by reallocation of employment from persistently low-sorting to persistently high-sorting firms, with the average sorting contribution of any given firm remaining stable over time. A decomposition shows that 60 % reflects reallocation among surviving firms and 40 % firm turnover through entry and exit. Regression analysis identifies firm entry and exit and industry reallocation as the dominant firm-side drivers, and rising educational attainment as the key worker-side factor - reflecting concentration of educated workers in high-sorting firms rather than a systematic tendency of educated workers to form high-sorting matches across all employers. Event studies establish direct job-to-job moves as the primary mechanism through which reallocation is implemented at the worker-level.
        KW  - wage inequality
KW  - wage sorting
KW  - firm dynamics
KW  - employment reallocation
KW  - job-to-job mobility
KW  - matched employer-employee data
        ER  -