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Wage differentials in the presence of unobserved worker, firm, and match heterogeneity

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Woodcock, Simon D.

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Abstract

We consider the problem of estimating and decomposing wage differentials in the presence of unobserved worker, firm, and match heterogeneity. Controlling for these unobservables corrects omitted variable bias in previous studies. It also allows us to measure the contribution of unmeasured characteristics of workers, firms, and worker-firm matches to observed wage differentials. An application to linked employer-employee data shows that decompositions of inter-industry earnings differentials and the male-female differential are misleading when unobserved heterogeneity is ignored.

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File URL: http://www.sciencedirect.com/science/article/B6VFD-4P192FX-2/2/bb09f2cdc6782bc49a5eaf161529fd6f
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Publisher Info
Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 15 (2008)
Issue (Month): 4 (August)
Pages: 771-793
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Handle: RePEc:eee:labeco:v:15:y:2008:i:4:p:771-793

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Related research
Keywords: Wage differentials Unobserved heterogeneity Employer-employee data;

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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.:
  1. Francine D. Blau & Lawrence M. Kahn, 2003. "Understanding International Differences in the Gender Pay Gap," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 106-144, January. [Downloadable!]
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  2. Simon D. Woodcock, 2005. "Heterogeneity and Learning in Labor Markets," Labor and Demography 0511012, EconWPA. [Downloadable!]
  3. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Technical Papers 2002-06, Longitudinal Employer-Household Dynamics, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  4. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March. [Downloadable!] (restricted)
  5. Groshen, Erica L, 1991. "Sources of Intra-industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 869-84, August. [Downloadable!] (restricted)
  6. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October. [Downloadable!] (restricted)
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  7. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier. [Downloadable!] (restricted)
  8. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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  9. Woodcock, Simon, 2006. "Match Effects," MPRA Paper 154, University Library of Munich, Germany. [Downloadable!]
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  10. Abowd, John M. & Kramarz, Francis, 1999. "Econometric analyses of linked employer-employee data," Labour Economics, Elsevier, vol. 6(1), pages 53-74, March. [Downloadable!] (restricted)
  11. Altonji, Joseph G. & Blank, Rebecca M., 1999. "Race and gender in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 48, pages 3143-3259 Elsevier. [Downloadable!] (restricted)
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  1. repec:ese:iserwp: is not listed on IDEAS
  2. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2008. "Heterogeneity and Cyclical Unemployment," Discussion Paper Series 0805, Institute of Economic Research, Korea University. [Downloadable!]
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