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The Pervasive Absence of Compensating Differentials

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  • Stéphane Bonhomme

    (Crest)

  • Grégory Jolivet

    (Crest)

Abstract

We write and estimate a dynamic model of wages, amenities and labor mobility.Workers trade off wage and amenity offers when deciding whether to change jobs,while facing heterogenous mobility costs. We show that these frictions can turn strongindividual preferences for non wage characteristics into very small wage/amenity cor-relation in cross section. We use voluntary job-to-job transitions to identify workers’Marginal Willingness to Pay for amenities. The resulting selection model is solvedusing alternative types of constrained transitions in order to proxy the distribution ofjob offers. We take the model to a panel of nine European countries while control-ling for unobserved heterogeneity. Our estimates show large MWP, more than 20% ofthe wage, for amenities such as the type of work or job security. We also find strongevidence of heterogeneity in mobility costs, and consequently weak wage/amenity incross-section.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2005-28.

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Length: 52
Date of creation: 2005
Date of revision:
Handle: RePEc:crs:wpaper:2005-28

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  1. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  2. Duncan, Greg J. & Holmlund, Bertil, 1983. "Was Adam Smith Right, After All? Another Test of the Theory of Compensating Wage Differentials," Working Paper Series 93, Research Institute of Industrial Economics.
  3. Kostiuk, Peter F, 1990. "Compensating Differentials for Shift Work," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1054-75, October.
  4. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2003. "On the Job Search and the Wage Distribution," CAM Working Papers 2004-09, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  5. Arcidiacono, Peter & Jones, John B., 2000. "Finite Mixture Distribution, Sequential Likelihood, and the EM Algorithm," Working Papers 00-16, Duke University, Department of Economics.
  6. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09.
  7. Timothy J. Gronberg & W. Robert Reed, 1994. "Estimating Workers' Marginal Willingness to Pay for Job Attributes Using Duration Data," Journal of Human Resources, University of Wisconsin Press, vol. 29(3), pages 911-931.
  8. 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.
  9. 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.
  10. 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.
  11. Herzog, Henry W, Jr & Schlottmann, Alan M, 1990. "Valuing Risk in the Workplace: Market Price, Willingness to Pay, and the Optimal Provision of Safety," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 463-70, August.
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  13. Harald Dale-Olsen, 2006. "Estimating Workers' Marginal Willingness to Pay for Safety using Linked Employer-Employee Data," Economica, London School of Economics and Political Science, vol. 73(289), pages 99-127, 02.
  14. 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.
  15. Matthew Dey & Christopher Flinn, 2007. "Household Search and Health Insurance Coverage," Carlo Alberto Notebooks 56, Collegio Carlo Alberto.
  16. 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.
  17. James J. Heckman & Christopher J. Flinn, 1982. "New Methods for Analyzing Structural Models of Labor Force Dynamics," NBER Working Papers 0856, National Bureau of Economic Research, Inc.
  18. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
  19. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
  20. Hwang, Hae-shin & Mortensen, Dale T & Reed, W Robert, 1998. "Hedonic Wages and Labor Market Search," Journal of Labor Economics, University of Chicago Press, vol. 16(4), pages 815-47, October.
  21. 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.
  22. 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.
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Cited by:
  1. Christina Felfe, 2008. "Return to Work - Mothers' Willingness to Pay for Job Amenities," University of St. Gallen Department of Economics working paper series 2008 2008-25, Department of Economics, University of St. Gallen.
  2. Diego Dueñas Fernández & Carlos Iglesias Fernández & Raquel Llorente Heras, 2010. "Job quality, job satisfaction and services in Spain," Working Papers 06/10, Instituto Universitario de Análisis Económico y Social.
  3. Hospido, Laura, 2010. "Job Changes and Individual-Job Specific Wage Dynamics," IZA Discussion Papers 5088, Institute for the Study of Labor (IZA).
  4. Giovanni L. Violante & Per Krusell & Andreas Hornstein, 2006. "Frictional wage dispersion in search models: a quantitative assessment," Working Paper 06-07, Federal Reserve Bank of Richmond.
  5. Christina Felfe, 2009. "The Willingness to Pay for Job Amenities: Evidence from Mothers' Return to Work," SOEPpapers on Multidisciplinary Panel Data Research 247, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Luke Haywood, 2014. "Too Rich to Do the Dirty Work?: Wealth Effects on the Demand for Good Jobs," Discussion Papers of DIW Berlin 1355, DIW Berlin, German Institute for Economic Research.
  7. John F. Helliwell & Haifang Huang, 2008. "Well-being and Trust in the Workplace," NBER Working Papers 14589, National Bureau of Economic Research, Inc.
  8. Paul Sullivan & Ted To, 2011. "Search and Non-Wage Job Characteristics," Working Papers 449, U.S. Bureau of Labor Statistics.

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