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Production Function and Wage Estimation with Heterogeneous Labor: Evidence from a New Match Employer-Employee Data Set

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Author Info
Judith Hellerstein
David Neumark

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Abstract

In this paper, we first describe the 1990 DEED, the most recently constructed matched employer-employee dataset for the United States that contains detailed demographic information on workers (most notably, information on education). We then use the data from manufacturing establishments in the 1990 DEED to update and expand on previous findings, using a more limited dataset, regarding the measurement of the labor input and theories of wage determination (Hellerstein et al., 1999). We find that the productivity of women is less than that of men, but not by enough to fully explain the gap in wages, a result that is consistent with wage discrimination against women. In contrast, we find no evidence of wage discrimination against blacks. We estimate that both the wage and productivity profiles are rising but concave to the origin (consistent with profiles quadratic in age), but the estimated relative wage profile is steeper than the relative productivity profile, consistent with models of deferred wages. We find a productivity premium for marriage equal to that of the wage premium and a productivity premium for education that somewhat exceeds the wage premium. Exploring the sensitivity of these results, we also find that different specifications of production functions do not have any qualitative effects on these results. Finally, the results indicate that the returns to productive inputs (capital, materials, labor quality) as well as the residual variance are virtually unaffected by the choice of the construction of the labor quality input.

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Publisher Info
Paper provided by Public Policy Institute of California in its series PPIC Working Papers with number 2004.06.

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Length: 42 pages
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:ppi:ppicwp:2004.06

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  1. Fernando Galindo-Rueda & Jonathan Haskel, 2005. "Skills, Workforce Characteristics and Firm-Level Productivity: Evidence from the Matched ABI/Employer Skills Survey," IZA Discussion Papers 1542, Institute for the Study of Labor (IZA). [Downloadable!]
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