We present an empirical model of earnings that controls for observable and unobservable characteristics of workers (person effects), unmeasured characteristics of their employers (firm effects), and unmeasured characteristics of worker-firm matches (match effects). The distinction between these components is important, because they have different implications for the persistence of individual earnings and the returns to employment mobility. We find that match effects, which have been ignored in previous work, are an important determinant of log earnings. They explain about 16 percent of observed variation, and much of the change in earnings when workers change employer. Specifications that omit match effects over-estimate the returns to experience by as much as 30 percent, attribute too much variation to person effects and little to firm effects, and underestimate the correlation between person and firm effects. Overall, our results suggest that some of the returns previously attributed to general human capital actually reflect the returns to sorting into higher-paying firms and better worker-firm matches.
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Paper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number
dp07-13.
Length: 35 Date of creation: Aug 2007 Date of revision: Handle: RePEc:sfu:sfudps:dp07-13
Contact details of provider: Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada Phone: (778)782-3508 Fax: (778)782-5944 Web page: http://www.econ.sfu.ca/ More information through EDIRC
Woodcock, Simon, 2006.
"Match Effects,"
MPRA Paper
154, University Library of Munich, Germany.
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Find related papers by JEL classification: C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Jacob Mincer & Boyan Jovanovic, 1982.
"Labor Mobility and Wages,"
NBER Working Papers
0357, National Bureau of Economic Research, Inc.
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Other versions:
Jacob Mincer & Boyan Jovanovic, 1981.
"Labor Mobility and Wages,"
NBER Chapters,
in: Studies in Labor Markets, pages 21-64
National Bureau of Economic Research, Inc.
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