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Job Dispersion and Compensating Wage Differentials

Author

Listed:
  • Paul Sullivan,

    () (U.S. Bureau of Labor Statistics)

  • Ted To

    () (U.S. Bureau of Labor Statistics)

Abstract

The empirical literature on compensating wage differentials has a mixed history. While there have been some successes, much of this literature finds weak support for the theory of equalizing differences. We argue that it is dispersion in total job values or "job dispersion" that leads to biased compensating wage differential estimates. We begin by demonstrating how job dispersion can lead to biased hedonic estimates. Then we take a partial equilibrium on-the-job search model with utility from non-wage job characteristics, structurally estimate it and then simulate a dataset. Using our simulated dataset, we conduct a detailed analysis of the sources of bias in hedonic wage estimates. While worker heterogeneity and job dynamics are important sources of job dispersion, a significant proportion of the variation in jobs can only be explained by the inherent randomness of job offers.

Suggested Citation

  • Paul Sullivan, & Ted To, 2013. "Job Dispersion and Compensating Wage Differentials," Working Papers 469, U.S. Bureau of Labor Statistics.
  • Handle: RePEc:bls:wpaper:ec130100
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    File URL: https://www.bls.gov/ore/pdf/ec130100.pdf
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    References listed on IDEAS

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    1. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages 63-84, Suppl. De.
    2. Shintaro Yamaguchi, 2010. "Job Search, Bargaining, and Wage Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 28(3), pages 595-631, July.
    3. Eckstein, Zvi & van den Berg, Gerard J., 2007. "Empirical labor search: A survey," Journal of Econometrics, Elsevier, vol. 136(2), pages 531-564, February.
    4. Han, Seungjin & Yamaguchi, Shintaro, 2015. "Compensating wage differentials in stable job matching equilibrium," Journal of Economic Behavior & Organization, Elsevier, vol. 114(C), pages 36-45.
    5. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    6. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
    7. Timothy J. Gronberg & W. Robert Reed, 1994. "Estimating Workers' Marginal Willingness to Pay for Job Attributes Using Duration Data," Journal of Human Resources, University of Wisconsin Press, vol. 29(3), pages 911-931.
    8. Christopher J. Flinn, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 611-645.
    9. Erica L. Groshen, 1991. "Sources of Intra-Industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 869-884.
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    Cited by:

    1. Francis, Bill & Hasan, Iftekhar & Mani, Sureshbabu & Ye, Pengfei, 2016. "Relative peer quality and firm performance," Journal of Financial Economics, Elsevier, vol. 122(1), pages 196-219.
    2. Paul Sullivan & Ted To, 2014. "Search and Nonwage Job Characteristics," Journal of Human Resources, University of Wisconsin Press, vol. 49(2), pages 472-507.

    More about this item

    Keywords

    compensating wage differential; theory of equalizing differences; revealed preference; on-the-job search;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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