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An Estimation Of Worker And Firm Effects With Censored Data

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  • Ainara González de San Román
  • Yolanda F. Rebollo‐Sanz

Abstract

In this paper, we develop a new estimation method that is suitable for censored models with two high dimensional fixed effects and that is based on a sequence of least squares regressions, yielding significant savings in computing time and hence making it applicable to frameworks in which standard estimation techniques become unfeasible. We propose to apply this estimation method to investigate the role of firms in individual wage variation. Using a longitudinal match employer‐employee dataset from Spain, we show that the analysis of wage determination can be misleading when wages are censored. In particular, the role of firm wage policies in wage dispersion is overestimated by more than ten percentage points, while the role of time‐invariant individual characteristics is underestimated by fifteen percentage points. Hence, controlling for censored wages appears to reinforce the idea that when explaining individual wage dispersion, what workers ‘are’ is more important than what workers ‘do’.

Suggested Citation

  • Ainara González de San Román & Yolanda F. Rebollo‐Sanz, 2018. "An Estimation Of Worker And Firm Effects With Censored Data," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 459-482, October.
    • Handle: RePEc:bla:buecrs:v:70:y:2018:i:4:p:459-482
    DOI: 10.1111/boer.12112
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    Cited by:

    1. Yolanda F. Rebollo-Sanz, 2017. "Decomposing the structure of wages into firm and worker effects: some insights from a high unemployment economy," Working Papers 17.10, Universidad Pablo de Olavide, Department of Economics.
    2. Anna Zaharieva, 2014. "On-the-Job Search and Optimal Schooling under Uncertainty and Irreversibility," Politica economica, Società editrice il Mulino, issue 2-3, pages 299-339.

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    More about this item

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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