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Compensating Wage Differentials in Stable Job Matching Equilibrium

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  • Seungjin Han
  • Shintaro Yamaguchi

Abstract

This paper studies implicit pricing of non-wage job characteristics in the labour market using a two-sided matching model. It departs from the previous literature by allowing worker heterogeneity in productivity, which gives rise to a double transaction problem in a hedonic model. Deriving sufficient conditions under which assortative matching is the unique stable job-worker matching, we show that observed wage differentials between jobs reflect not only compensating wage differentials, but also worker productivity gaps between the jobs. We find that the job-worker matching pattern determines the extent to which compensating wage differentials are confounded with the worker productivity gap effect.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2012-01.pdf
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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2012-01.

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Length: 25 pages
Date of creation: Jan 2012
Date of revision: Feb 2013
Handle: RePEc:mcm:deptwp:2012-01

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Keywords: hedonic model; heterogeneity; two-sided matching; matching pattern; wage differential; equalizing difference; worker productivity;

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References

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  1. Ivar Ekeland, 2010. "Existence, uniqueness and efficiency of equilibrium in hedonic markets with multidimensional types," Economic Theory, Springer, Springer, vol. 42(2), pages 275-315, February.
  2. 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.
  3. Pierre-André Chiappori & Robert McCann & Lars Nesheim, 2010. "Hedonic price equilibria, stable matching, and optimal transport: equivalence, topology, and uniqueness," Economic Theory, Springer, Springer, vol. 42(2), pages 317-354, February.
  4. Ekeland, Ivar & Heckman, James J. & Nesheim, Lars, 2004. "Identification and Estimation of Hedonic Models," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/6486, Paris Dauphine University.
  5. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc.
  6. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, Econometric Society, vol. 75(4), pages 1073-1102, 07.
  7. Hwang, Hae-shin & Reed, W Robert & Hubbard, Carlton, 1992. "Compensating Wage Differentials and Unobserved Productivity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(4), pages 835-58, August.
  8. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1111-1128, November.
  9. Lucas, Robert E B, 1977. "Hedonic Wage Equations and Psychic Wages in the Returns to Schooling," American Economic Review, American Economic Association, American Economic Association, vol. 67(4), pages 549-58, September.
  10. Sattinger, Michael, 1977. "Compensating wage differences," Journal of Economic Theory, Elsevier, Elsevier, vol. 16(2), pages 496-503, December.
  11. Duncan, Greg J. & Holmlund, Bertil, 1983. "Was Adam Smith Right, After All? Another Test of the Theory of Compensating Wage Differentials," Working Paper Series, Research Institute of Industrial Economics 93, Research Institute of Industrial Economics.
  12. Yoshitsugu Kanemoto, 1985. "Hedonic Prices and the Benefits of Public Projects," Working Papers, Queen's University, Department of Economics 617, Queen's University, Department of Economics.
  13. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(1), pages 113-34, February.
  14. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  15. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(2), pages 280-315, April.
  16. 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.
  17. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  18. Donald Boyd & Hamilton Lankford & Susanna Loeb & James Wyckoff, 2003. "Analyzing the Determinants of the Matching Public School Teachers to Jobs: Estimating Compensating Differentials in Imperfect Labor Markets," NBER Working Papers 9878, National Bureau of Economic Research, Inc.
  19. Hwang, Hae-shin & Mortensen, Dale T & Reed, W Robert, 1998. "Hedonic Wages and Labor Market Search," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(4), pages 815-47, October.
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Cited by:
  1. Paul Sullivan, & Ted To, 2013. "Job Dispersion and Compensating Wage Differentials," Working Papers, U.S. Bureau of Labor Statistics 469, U.S. Bureau of Labor Statistics.

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