Are Good Workers Employed by Good Firms? A Simple Test of Positive Assortative Matching Models
In this article, we test a simple version of Becker's (1973) marriage model for wage setting. This model predicts positive assortative matching. We estimate this model using linked employer--employee data for the France and the United States. We reject the simple version for both countries. The zero or negative correlation between person and firm effects is not explained by estimation biases due to a lack of mobility in the data. Several other potential explanations are proposed, including Shimer (2001) style coordination friction models. We focus on direct evidence that good workers are employed by good firms. This provides a direct empirical test of the simplest version of the Becker matching model. We start by constructing a very simple structural model of production and pay that implies positive assortative matching between a worker and her employer, exactly in the spirit of Becker. We do structural estimation using both French and American matched longitudinal employer-employee data. Because the structural model implies that the log-wage of workers is the sum of a person-specific effect and a firm-specific effect, recently developed techniques (Abowd, Creecy and Kramarz 2002) can be used to estimate its parameters. Because the Becker model predicts positive assortative matching, the person and firm effects should be positively correlated. We examine this correlation and find that it is either negligibly positive (United States) or negative (France). The article discusses one possible interpretation -- biases in the estimated parameters because the mobility process that helps identify the structural parameters is not active enough. Even though this interpretation contains a grain of truth, the bias-corrected correlations are still, respectively, negligibly positive and negative. Therefore, these results must be taken at their face value. The remainder of the article tries to understand the implications of the rejection of this model. In particular, it discusses various hypotheses that are used in order to derive and estimate the structural model. First, a true and meaningful firm effect must exist. Second, the log-wage must be the sum of a person component and of a firm component. The first hypothesis that is needed in order to generate a true and meaningful firm effect is the absence of a perfectly competitive labor market. The second hypothesis -- the absence of comparative advantage in the economy -- comes from the structure of the compensation in the model: the log-wage is the sum of a person component and of a firm component.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||11 Aug 2004|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ecm:nawm04:385. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.