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Preferences, comparative advantage, and compensating wage differentials for job routinization

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  • Climent Quintana Domeque

    (Universidad de Alicante)

Abstract

In this paper I attempt to explain why labor economists typically have not been able to find much evidence on compensating wage differentials for job disamenities, except for risk of death. The key insight here is that, although workers need to be compensated when their preferences do not match the requirements for performing a job task, the occurrence of mismatch also decreases productivity, reducing the surplus to be divided between workers and firms, and decreasing wages. I focus on the match between workers¿ preferences for routine jobs and the variability in tasks associated with the job. Using data from the Wisconsin Longitudinal Study, I find that mismatched workers earn lower wages and that both male and female workers in routinized jobs earn, on average, 5.5% and 7% less than their counterparts in non-routinized jobs. However, once preferences and mismatch are accounted for, this difference decreases to 2% for men and 4% for women. These findings suggest that accounting for mismatch is important when analyzing compensating wage differentials.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2010-06.

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Length: 47 pages
Date of creation: Mar 2010
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2010-06

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Keywords: Compensating wage differentials; preferences; comparative advantage; mismatch; routine;

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References

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  1. David Cuberes & William R. Dougan, 2010. "How Endogenous Is Money? Evidence from a New Microeconomic Estimate," Working Papers. Serie AD 2010-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Goldin, Claudia & Kuziemko, Ilyana & Katz, Lawrence, 2006. "The Homecoming of American College Women: The Reversal of the College Gender Gap," Scholarly Articles 2962611, Harvard University Department of Economics.
  3. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. 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.
  5. Marco van der Leij & Sanjeev Goyal, 2006. "Strong Ties in a Small World," Tinbergen Institute Discussion Papers 06-008/1, Tinbergen Institute.
  6. Lex Borghans & Bas ter Weel & Bruce A. Weinberg, 2007. "Interpersonal Styles and Labor Market Outcomes," NBER Working Papers 12846, National Bureau of Economic Research, Inc.
  7. Kevin Lang & Sumon Majumdar, 2003. "The Pricing of Job Characteristics When Markets Do Not Clear: Theory and Implications," NBER Working Papers 9911, National Bureau of Economic Research, Inc.
  8. Lucas, Robert E B, 1977. "Hedonic Wage Equations and Psychic Wages in the Returns to Schooling," American Economic Review, American Economic Association, vol. 67(4), pages 549-58, September.
  9. McNabb, Robert, 1989. "Compensating Wage Differentials: Some Evidence for Britain," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 327-38, April.
  10. Jeffrey S. Zax & Daniel I. Rees, 2002. "IQ, Academic Performance, Environment, and Earnings," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 600-616, November.
  11. 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. Pierre-André Chiappori & Sonia Oreffice & Climent Quintana-Domeque, 2012. "Matching with a Handicap: The Case of Smoking in the Marriage Market," CHILD Working Papers Series 8, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
  2. Olena Nizalova, 2014. "Inequality in Total Returns to Work in Ukraine: Taking A Closer Look at Workplace (Dis)amenities," Discussion Papers 52, Kyiv School of Economics.

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