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The pervasive absence of compensating differentials

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  • StÈphane Bonhomme

    (CEMFI, Madrid, Spain)

  • GrÈgory Jolivet

    (Department of Economics, University of Bristol, UK)

Abstract

We study the relation between individual preferences for job amenities (e.g., type of work, job security) and compensating wage differentials in cross-section. To this end, we estimate a partial equilibrium job search model on panel data from eight European countries. There are five non-wage job characteristics and two sources of job-to-job mobility: on-the-job search and reallocation shocks. We also allow for two types of unobserved heterogeneity. We find strong preferences for amenities, especially job security, yet, these preferences do not translate into significant wage differentials in cross-section. Counterfactual experiments show that one would need extremely low levels of search frictions for compensating differentials to arise. Lastly, a similar exercise on the distribution of job change outcomes reveals the role of constrained job-to-job mobility in the absence of compensating wage differentials. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1074
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 24 (2009)
Issue (Month): 5 ()
Pages: 763-795

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Handle: RePEc:jae:japmet:v:24:y:2009:i:5:p:763-795

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  1. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2005. "On-the-Job Search and the Wage Distribution," Journal of Labor Economics, University of Chicago Press, vol. 23(1), pages 31-58, January.
  2. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  3. Geert Ridder & Gerard J. van den Berg, 2003. "Measuring Labor Market Frictions: A Cross-Country Comparison," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 224-244, 03.
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  8. Dey, Matthew & Flinn, Christopher, 2008. "Household search and health insurance coverage," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 43-63, July.
  9. Ommeren, Jos van & Berg, Gerard J. van den & Gorter, Cees, 1998. "Estimating the marginal willingness to pay for commuting," Serie Research Memoranda 0046, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  10. Hwang, Hae-shin & Reed, W Robert & Hubbard, Carlton, 1992. "Compensating Wage Differentials and Unobserved Productivity," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 835-58, August.
  11. Kevin Lang & Sumon Majumdar, 2004. "The Pricing Of Job Characteristics When Markets Do Not Clear: Theory And Policy Implications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1111-1128, November.
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  15. Daniel, Christophe & Sofer, Catherine, 1998. "Bargaining, Compensating Wage Differentials, and Dualism of the Labor Market: Theory and Evidence for France," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 546-75, July.
  16. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  17. Goddeeris, John H, 1988. "Compensating Differentials and Self-selection: An Application to Lawyers," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 411-28, April.
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  20. Kostiuk, Peter F, 1990. "Compensating Differentials for Shift Work," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1054-75, October.
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Cited by:
  1. Christina Felfe, 2009. "The Willingness to Pay for Job Amenities: Evidence from Mothers' Return to Work," CESifo Working Paper Series 2743, CESifo Group Munich.
  2. Hospido, Laura, 2010. "Job Changes and Individual-Job Specific Wage Dynamics," IZA Discussion Papers 5088, Institute for the Study of Labor (IZA).
  3. Paul Sullivan & Ted To, 2011. "Search and Non-Wage Job Characteristics," Working Papers 449, U.S. Bureau of Labor Statistics.
  4. John F. Helliwell & Haifang Huang, 2008. "Well-being and Trust in the Workplace," NBER Working Papers 14589, National Bureau of Economic Research, Inc.

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