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Wage dynamics in the presence of unobserved individual and job heterogeneity

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  • Hospido, Laura

Abstract

This paper develops an error-components model for wages that incorporates individual fixed effects, job-specific effects, and a persistent shock with an autoregressive structure over time. The novel feature of the model is that the estimation of this dynamic persistence is robust to any distributional form for the unobserved individual and job components, and the relationship between them. Then, additional assumptions are considered to separately identify the relative magnitude of these two components. In the data drawn from the PSID, we find that — once individual and job-specific effects are taken into account — the estimated persistence is significant but small. In addition, the ratio of the estimated variance of the job-specific effects to the variance of the individual time-invariant component is 40%.

Suggested Citation

  • Hospido, Laura, 2015. "Wage dynamics in the presence of unobserved individual and job heterogeneity," Labour Economics, Elsevier, vol. 33(C), pages 81-93.
  • Handle: RePEc:eee:labeco:v:33:y:2015:i:c:p:81-93
    DOI: 10.1016/j.labeco.2015.03.012
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    3. Albanese, Andrea & Gallo, Giovanni, 2020. "Buy flexible, pay more: The role of temporary contracts on wage inequality," Labour Economics, Elsevier, vol. 64(C).
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    6. Marco Leonardi, 2017. "Job Mobility And Earnings Instability," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 260-280, January.
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    More about this item

    Keywords

    Panel data; Dynamic models; Individual wages; Unobserved heterogeneity; Job changes;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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