Workplace Heterogeneity and the Returns to Versatility

In this paper I develop a parsimonious model in which workers face both frictional and structural impediments to sorting. Versatility enhances workers’ ability to sort into the most productive firms since a mismatch between job requirements and a worker’s capabilities is less likely to occur. The returns to sorting and hence versatility are larger the more pronounced the productivity-differentials between firms. I test this hypothesis by exploiting industry variation in sales-per-worker dispersion across firms in the United States in the 1990s: An increase in the sales per-worker standard deviation by 50 log-points is estimated to raise above-median versatile workers’ relative wage by 14 log-points.