Individual Pay and Outside Options: Evidence from the Polish Labour Force Survey
Using Polish Labour Force Survey data, we examine whether competition in the labour market as induced individual pay to depend on outside options. Exploiting the lack of inter-regional job and worker flows we estimate the elasticity of individual pay, amongst a rich set of individual characteristics, to be approximately -0.1 for local unemployment and +0.1 for local job reallocation (composition shifts in employment over the business cycle). Variations in local labour market conditions explain approximately 50 per cent of the differences in expected individual earnings across regions, while differences in inherited human capital and occupation structures explain the rest.
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