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Compensating Wage Differentials in Stable Job Matching Equilibrium

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  • Seungjin Han
  • Shintaro Yamaguchi

Abstract

This paper studies implicit pricing of non-wage job characteristics in the labour market using a two-sided matching model. It departs from the previous literature by allowing worker heterogeneity in productivity, which gives rise to a double transaction problem in a hedonic model. Deriving sufficient conditions under which assortative matching is the unique stable job-worker matching, we show that observed wage differentials between jobs reflect not only compensating wage differentials, but also worker productivity gaps between the jobs. We find that the job-worker matching pattern determines the extent to which compensating wage differentials are confounded with the worker productivity gap effect.

Suggested Citation

  • Seungjin Han & Shintaro Yamaguchi, 2012. "Compensating Wage Differentials in Stable Job Matching Equilibrium," Department of Economics Working Papers 2012-01, McMaster University, revised Feb 2013.
  • Handle: RePEc:mcm:deptwp:2012-01
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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2012-01.pdf
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    References listed on IDEAS

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    1. Duncan, Greg J & Holmlund, Bertil, 1983. "Was Adam Smith Right after All? Another Test of the Theory of Compensating Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 366-379, October.
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    Cited by:

    1. Peng, Zixuan & Shan, Wenxuan & Guan, Feng & Yu, Bin, 2016. "Stable vessel-cargo matching in dry bulk shipping market with price game mechanism," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 95(C), pages 76-94.
    2. Paul Sullivan, & Ted To, 2013. "Job Dispersion and Compensating Wage Differentials," Working Papers 469, U.S. Bureau of Labor Statistics.
    3. repec:eco:journ1:2017-03-11 is not listed on IDEAS

    More about this item

    Keywords

    hedonic model; heterogeneity; two-sided matching; matching pattern; wage differential; equalizing difference; worker productivity;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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