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

Woodcock, Simon (2006): Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity. Unpublished.

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.

• Item Type: MPRA Paper
• Institution: Simon Fraser University
• Language: English
• Keywords: wage differentials; unobserved heterogeneity; employer-employee data
• Subjects: C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C23 - Models with Panel Data; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.