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

In: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches

  • Judith K. Hellerstein
  • David Neumark

In this paper, we first describe the 1990 DEED, the most recently constructed matched employer-employee data set 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 data set, regarding the measurement of the labor input and theories of wage determination. 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 the 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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This chapter was published in:
  • Ernst R. Berndt & Charles R. Hulten, 2007. "Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches," NBER Books, National Bureau of Economic Research, Inc, number bern07-1, July.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0873.
    Handle: RePEc:nbr:nberch:0873
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series 2000-19, Board of Governors of the Federal Reserve System (U.S.).
    2. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
    3. Robert H Mcguckin & George A Pascoe, 1988. "The Longitudinal Research Database (LRD): Status And Research Possibilities," Working Papers 88-2, Center for Economic Studies, U.S. Census Bureau.
    4. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
    5. Judith K. Hellerstein & David Neumark, 2002. "Ethnicity, Language, and Workplace Segregation: Evidence from a New Matched Employer-Employee Data Set," NBER Working Papers 9037, National Bureau of Economic Research, Inc.
    6. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, June.
    7. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
    8. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
    9. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    10. Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
    11. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
    12. Judith K. Hellerstein & David Neumark, 1995. "Are Earnings Profiles Steeper Than Productivity Profiles? Evidence from Israeli Firm-Level Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 89-112.
    13. Hellerstein, Judith K & Neumark, David, 1999. "Sex, Wages, and Productivity: An Empirical Analysis of Israeli Firm-Level Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 95-123, February.
    14. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
    15. Zvi Griliches, 1970. "Notes on the Role of Education in Production Functions and Growth Accounting," NBER Chapters, in: Education, Income, and Human Capital, pages 71-127 National Bureau of Economic Research, Inc.
    16. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier.
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