We propose a new sorting framework: composite sorting. Composite sorting comprises of (1) distinct worker types assigned to the same occupation, and (2) a given worker type simultaneously being part of both positive and negative sorting. Composite sorting arises when fixed investments mitigate variable costs of mismatch. We completely characterize optimal sorting and additionally show it is more positive when mismatch costs are less concave. We then characterize equilibrium wages. Wages have a regional hierarchical structure − relative wages depend solely on sorting within skill groups. Quantitatively, composite sorting can generate a sizable portion of within-occupations wage dispersion in the US.
We thank Manuel Amador, Carter Braxton, Hector Chade, Philipp Kircher, Moritz Kuhn, Rasmus Lentz, Ilse Lindenlaub, Jeremy Lise, Paolo Martellini, Guido Menzio, Guiseppe Moscarini, Chris Moser, Andrea Ottolini, Luigi Pistaferri, Tommaso Porzio, Fabien Postel-Vinay, Stefan Steinerberger, Ethan Yang, and Alexander Zimin for comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.