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Wage Comparisons -A Selectivity Bias

  • Reuben Gronau

The economics of information have been established by now as an integral part of economic analysis. However, surprisingly little has been written on the implications of search (and in particular, job search) for the estimation of the wage function and its ramifications in such cases as the estimation of the determinants of labor force participation, age-earning profiles, rates of return and rates of depreciation of human capital, degree of discrimination, etc. Given a wage offer distribution, the parameters of the observed wage distribution depend on the intensity of search. The lower a person’s wage demands the greater the chance of his finding an acceptable job, but the lower the wage he expects to receive and the wider the dispersion of acceptable wages around their mean. On the other hand, the job seeker may opt for a more ambitious search strategy, raising his minimum wage demand and consequently increasing the risk of remaining unemployed, but also increasing the expected wage and decreasing the dispersion of available offers. Models of wage offer distribution have traditionally been based on empirical observation of observed wage distribution. This approach may involve certain biases when applied to secondary labor groups â€" married women, teenagers and the aged. This paper attempts to point out some of these biases and suggests a method for their correction.

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File URL: http://www.nber.org/papers/w0013.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0013.

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Date of creation: Oct 1973
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Publication status: published as Gronau, Reuben. "Wage Comparisons -A Selectivity Bias." Journal of Political Economy, Vol. 82, No. 6, (November/December 1974).
Handle: RePEc:nbr:nberwo:0013
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  1. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  2. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  3. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-62, December.
  4. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  5. Ben-Porath, Yoram, 1973. "Labor-Force Participation Rates and the Supply of Labor," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 697-704, May-June.
  6. Rothschild, Michael, 1973. "Models of Market Organization with Imperfect Information: A Survey," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1283-1308, Nov.-Dec..
  7. Gronau, Reuben, 1971. "Information and Frictional Unemployment," American Economic Review, American Economic Association, vol. 61(3), pages 290-301, June.
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