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Ranking Firms Using Revealed Preference

Oct 2017
Working Paper
17-025
By  Isaac Sorkin
This paper estimates workers' preferences for rms by studying the structure of employer-to-employer transitions in U.S. administrative data. The paper uses a tool from numerical linear algebra to measure the central tendency of worker flows, which is closely related to the ranking of firms revealed by workers' choices. There is evidence for compensating differential when workers systematically move to lower-paying firms in a way that cannot be accounted for by layoffs or differences in recruiting intensity. The estimates suggest that compensating differentials account for over half of the firm component of the variance of earnings.