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Modeling Endogenous Mobility in Wage Determiniation

Author

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  • John M. Abowd
  • Kevin McKinney
  • Ian M. Schmutte

Abstract

We evaluate the bias from endogenous job mobility in fixed-effects estimates of worker- and firm-specific earnings heterogeneity using longitudinally linked employer-employee data from the LEHD infrastructure file system of the U.S. Census Bureau. First, we propose two new residual diagnostic tests of the assumption that mobility is exogenous to unmodeled determinants of earnings. Both tests reject exogenous mobility. We relax the exogenous mobility assumptions by modeling the evolution of the matched data as an evolving bipartite graph using a Bayesian latent class framework. Our results suggest that endogenous mobility biases estimated firm effects toward zero. To assess validity, we match our estimates of the wage components to out-of-sample estimates of revenue per worker. The corrected estimates attribute much more of the variation in revenue per worker to variation in match quality and worker quality than the uncorrected estimates.

Suggested Citation

  • John M. Abowd & Kevin McKinney & Ian M. Schmutte, 2015. "Modeling Endogenous Mobility in Wage Determiniation," Working Papers 15-18, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:15-18
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    File URL: https://www2.census.gov/ces/wp/2015/CES-WP-15-18.pdf
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    References listed on IDEAS

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    3. Ian M. Schmutte, 2015. "Job Referral Networks and the Determination of Earnings in Local Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 33(1), pages 1-32.
    4. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
    5. Helwege, Jean, 1992. "Sectoral Shifts and Interindustry Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 55-84, January.
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    7. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
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    10. Krishna, Pravin & Poole, Jennifer P. & Senses, Mine Zeynep, 2014. "Wage Effects of Trade Reform with Endogenous Worker Mobility," Journal of International Economics, Elsevier, vol. 93(2), pages 239-252.
    11. Cory Koedel & Julian R. Betts, 2011. "Does Student Sorting Invalidate Value-Added Models of Teacher Effectiveness? An Extended Analysis of the Rothstein Critique," Education Finance and Policy, MIT Press, vol. 6(1), pages 18-42, January.
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    15. John M. Abowd & Bryce E. Stephens & Lars Vilhuber & Fredrik Andersson & Kevin L. McKinney & Marc Roemer & Simon Woodcock, 2009. "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators," NBER Chapters,in: Producer Dynamics: New Evidence from Micro Data, pages 149-230 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Peter Hull, 2018. "Estimating Treatment Effects in Mover Designs," Papers 1804.06721, arXiv.org.
    2. Dauth, Wolfgang & Findeisen, Sebastian & Südekum, Jens, 2016. "Adjusting to Globalization - Evidence from Worker-Establishment Matches in Germany," CEPR Discussion Papers 11045, C.E.P.R. Discussion Papers.
    3. John M. Abowd & Francis Kramarz & Sébastien Pérez-Duarte & Ian M. Schmutte, 2018. "Sorting Between and Within Industries: A Testable Model of Assortative Matching," Annals of Economics and Statistics, GENES, issue 129, pages 1-32.
    4. Jinkins, David & Morin, Annaïg, 2018. "Job-to-job transitions, sorting, and wage growth," Labour Economics, Elsevier, vol. 55(C), pages 300-327.
    5. Bødker, Jonas Ehn & Maibom, Jonas & Vejlin, Rune Majlund, 2018. "Decomposing the Exporter Wage Gap: Selection or Differential Returns?," IZA Discussion Papers 11998, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Earnings heterogeneity; Mobility Bias; Latent Class Model; Markov Chain Monte Carlo;

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