Individual Pay and Outside Options: Evidence from the Polish Labor Force Survey

Abstract

Using Polish Labour Force Survey data, we examine whether competition for labor has induced individual pay to depend on outside options, availability and quality of jobs. 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 (job shortages) and +0.1 for local job reallocation (restructuring). Variations in local labor market conditions explain approximately 50 percent of the differences in expected individual earnings across regions, while differences in inherited human capital and occupation structures explain the rest.

Keywords: Wage Determination, Unemployment, Job Reallocation, Polish Regions

JEL Classification: J6, L0, O5