Pricing Job Amenities: A Practitioner's Manual

This paper provides a practical framework for estimating compensating differentials in the presence of unobserved worker ability. The approach treats ability as a structured residual that shapes access to both wages and non-pay job attributes. Job choice is assumed to be governed by a single vertical job-quality index, and—conditional on this index—an observed proxy for ability acts as an "anti-instrument" that allows researchers to recover amenity prices from standard observational data. Identification relies on a simple conditional independence assumption: if pay, amenities, and underlying job quality were fully observed, the anti-instrument would add no additional information. The paper emphasizes implementation and interpretation rather than technical proofs, offering a practical roadmap for applied researchers; adoption is supported by the companion aivreg Stata package, which enables estimation using standard cross-sectional datasets. An application to the experimental setting of Mas and Pallais (2017) shows that the pricing method reproduces experimentally measured willingness-to-pay patterns with observational data, further validating the strength of both the experimental and observational approaches.