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Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity

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Abstract

We consider the problem of estimating and decomposing wage differentials in the presence of unobserved worker, firm, and match heterogeneity. Controlling for these unobservables corrects omitted variable bias in previous studies. It also allows us to measure the contribution of unmeasured characteristics of workers, firms, and worker-firm matches to observed wage differentials. An application to linked employer-employee data shows that decompositions of inter-industry earnings differentials and the male-female differential are misleading when unobserved heterogeneity is ignored.

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  • Simon D. Woodcock, 2007. "Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity," Discussion Papers dp07-10, Department of Economics, Simon Fraser University.
  • Handle: RePEc:sfu:sfudps:dp07-10
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    More about this item

    Keywords

    wage differentials; unobserved heterogeneity; employer-employee data;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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