Reverse Matching Outcomes in O-Ring Production : Evidence from an Endogenous Sorting Model

This paper adds endogenous choice to workers’ behavior in a modified O-Ring framework, explicitly modeling the sorting dynamics as workers move between firms/countries at the micro-level. This approach reveals in a world with heterogeneous technology, workers sort into a previously unknown equilibrium in which the highest skill workers choose the smallest task firms. The stability of the outcome is then tested to determine it’s resilience to parameters in the model, finding changes to worker density and productivity disrupt movement to this equilibrium. Finally, it is shown the addition of a credit mechanism or subsidy can recover the correct type of sorting