Firms and Skills: The Evolution of Worker Sorting

We document a significant increase in the sorting of workers by cognitive and noncognitive skills across Swedish firms during 1986–2008. During this period, worker skill differences between firms increased, while within-firm skill differences fell. A significant fraction of the increase in the between-firm differences in cognitive skill is due to high-skilled workers moving into the information and communications technology (ICT) sector. Within-firm skill differences fell in all major industries, but particularly in the manufacturing sector. Combined with steeper firm-level skill gradients, the increase in sorting can account for 45 percent of the increase in between-firm wage dispersion during our period of study.