Advanced Search
MyIDEAS: Login to save this article or follow this journal

Heterogeneity and Learning in Labor Markets

Contents:

Author Info

  • Woodcock Simon D

    ()
    (Simon Fraser University)

Abstract

I develop an equilibrium matching model where heterogeneous workers and firms learn about match quality and bargain over wages. The model generalizes Jovanovic (1979) to the case of heterogeneous workers and firms. Equilibrium wage dispersion arises due to productivity differences between workers, technological differences between firms, and heterogeneity in beliefs about match quality. Under a simple CRS technology, the equilibrium wage is additively separable in worker- and firm-specific components as well as in the posterior mean of beliefs about match quality. This parallels the “person and firm effects” empirical specification of Abowd et al (1999) and others. The model predicts a negative correlation between estimated person and firm effects, which is consistent with most previous empirical evidence. I estimate the equilibrium wage function and test the model's empirical predictions using linked employer-employee data from the U.S. Census Bureau. I find empirical support for many of the model's predictions and estimate that dispersion in beliefs about match quality explains over 20 percent of observed earnings variation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.degruyter.com/view/j/bejeap.2010.10.1/bejeap.2010.10.1.2010/bejeap.2010.10.1.2010.xml?format=INT
Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 10 (2010)
Issue (Month): 1 (September)
Pages: 1-69

as in new window
Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:85

Contact details of provider:
Web page: http://www.degruyter.com

Order Information:
Web: http://www.degruyter.com/view/j/bejeap

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages 972-90, October.
  2. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
  3. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1251-71, November.
  4. Upward, Richard & Schank, Thorsten & J. Andrews, Martyn, 2005. "Practical estimation methods for linked employer-employee data," Discussion Papers 29 [rev.], Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  5. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9503, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3548, C.E.P.R. Discussion Papers.
  7. Andrews, Martyn J. & Gill, Len & Schank, Thorsten & Upward, Richard, 2006. "High wage workers and low wage firms : negative assortative matching or statistical artefact?," Discussion Papers 42, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  8. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, Elsevier, vol. 29(3), pages 229-256, September.
  9. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, Econometric Society, vol. 68(2), pages 343-370, March.
  10. John Abowd & Francis Kramarz & Paul Lengermann & Kevin McKinney & Sébastien Roux, 2012. "Persistent inter‐industry wage differences: rent sharing and opportunity costs," IZA Journal of Labor Economics, Springer, Springer, vol. 1(1), pages 1-25, December.
  11. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  12. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 411-45, March.
  13. Max Gruetter & Rafael Lalive, . "The Importance of Firms in Wage Determination," IEW - Working Papers 207, Institute for Empirical Research in Economics - University of Zurich.
  14. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  15. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Farber, Henry S & Gibbons, Robert, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(4), pages 1007-47, November.
  17. Abowd, John M. & Kramarz, Francis, 1999. "Econometric analyses of linked employer-employee data," Labour Economics, Elsevier, Elsevier, vol. 6(1), pages 53-74, March.
  18. Ann P. Bartel & George J. Borjas, 1981. "Wage Growth and Job Turnover: An Empirical Analysis," NBER Chapters, in: Studies in Labor Markets, pages 65-90 National Bureau of Economic Research, Inc.
  19. John M. Abowd (corresponding) & Francis Kramarz, 2004. "Are Good Workers Employed by Good Firms? A Simple Test of Positive Assortative Matching Models," Econometric Society 2004 North American Winter Meetings 385, Econometric Society.
  20. Joseph Altonji & R. Shakotko, 1985. "Do Wages Rise with Job Seniority?," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 567, Princeton University, Department of Economics, Industrial Relations Section..
  21. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2005. "Comparative Advantage, Learning, and Sectoral Wage Determination," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 23(4), pages 681-724, October.
  22. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers, Center for Economic Studies, U.S. Census Bureau 2002-06, Center for Economic Studies, U.S. Census Bureau.
  23. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  24. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-18, April.
  25. Goux, Dominique & Maurin, Eric, 1999. "Persistence of Interindustry Wage Differentials: A Reexamination Using Matched Worker-Firm Panel Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(3), pages 492-533, July.
  26. Robert Shimer, 2001. "The Assignment of Workers to Jobs In an Economy with Coordination Frictions," NBER Working Papers 8501, National Bureau of Economic Research, Inc.
  27. Jacob Mincer & Boyan Jovanovic, 1981. "Labor Mobility and Wages," NBER Chapters, in: Studies in Labor Markets, pages 21-64 National Bureau of Economic Research, Inc.
  28. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers, Center for Economic Studies, U.S. Census Bureau 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
  29. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, Econometric Society, vol. 43(3), pages 455-68, May.
  30. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  31. Lee A. LILLARD, 1999. "Job Turnover Heterogeneity and Person-Job-Specific Time-Series Wages," Annales d'Economie et de Statistique, ENSAE, issue 55-56, pages 183-210.
  32. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
  33. Flinn, Christopher J, 1986. "Wages and Job Mobility of Young Workers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages S88-S110, June.
  34. Stern, Steven, 1990. "The Effects of Firm Optimizing Behaviour in Matching Models," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(4), pages 647-60, October.
  35. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  36. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Carl Sanders, 2012. "Skill Uncertainty, Skill Accumulation, and Occupational Choice," 2012 Meeting Papers, Society for Economic Dynamics 633, Society for Economic Dynamics.
  2. Woodcock, Simon, 2006. "Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity," MPRA Paper 1341, University Library of Munich, Germany.
  3. Cristian Bartolucci & Francesco Devicienti, 2012. "Better Workers Move to Better Firms: A Simple Test to Identify Sorting," Carlo Alberto Notebooks, Collegio Carlo Alberto 259, Collegio Carlo Alberto.
  4. Sónia Torres & Pedro Portugal & John T. Addison & Paulo Guimarães, 2013. "The sources of wage variation: a three-way high-dimensional fixed effects regression model," Working Papers, Banco de Portugal, Economics and Research Department w201309, Banco de Portugal, Economics and Research Department.
  5. Torben Sørensen & Rune Vejlin, 2013. "The importance of worker, firm and match effects in the formation of wages," Empirical Economics, Springer, Springer, vol. 45(1), pages 435-464, August.
  6. Simon D. Woodcock, 2007. "Match Effects," Discussion Papers dp07-13, Department of Economics, Simon Fraser University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:85. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.