The Happiness Gains From Sorting and Matching in the Labor Market

Sorting of people on the labor market not only assures the most productive use of valuableskills but also generates individual utility gains if people experience an optimal match betweenjob characteristics and their preferences. Based on individual data on subjective well-being it ispossible to assess these latter gains from matching. We introduce a two-equation ordered probitmodel with endogenous switching and study self-selection into government and private sectorjobs. In an analysis with data from the European Social Survey, we find considerable gains frommatching amounting to an increase in the fraction of very satisfied workers from 53.8 to 58.8percent relative to a hypothetical random allocation of workers to the two sectors. A companionanalysis of data from the German Socio-Economic Panel shows that selection on unobservablesis reduced once we include additional controls for preference heterogeneity.