Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set

Public Policy Institute of California No. 2004.06

Posted: 29 Apr 2004

See all articles by Judith K. Hellerstein

Judith K. Hellerstein

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2004

Abstract

In this paper, we first describe the 1990 DEED, the most recently constructed matched employer-employee data set for the United States that contains detailed demographic information on workers (most notably, information on education). We then use the data from manufacturing establishments in the 1990 DEED to update and expand on previous findings, using a more limited data set, regarding the measurement of the labor input and theories of wage determination (Hellerstein, et al., 1999). We find that the productivity of women is less than that of men, but not by enough to fully explain the gap in wages, a result that is consistent with wage discrimination against women. In contrast, we find no evidence of wage discrimination against blacks. We estimate that both the wage and productivity profiles are rising but concave to the origin (consistent with profiles quadratic in age), but the estimated relative wage profile is steeper than the relative productivity profile, consistent with models of deferred wages. We find a productivity premium for marriage equal to that of the wage premium, and a productivity premium for education that somewhat exceeds the wage premium. Exploring the sensitivity of these results, we also find that different specifications of production functions do not have any qualitative effects on these results. Finally, the results indicate that the returns to productive inputs (capital, materials, labor quality) as well as the residual variance are virtually unaffected by the choice of the construction of the labor quality input.

Keywords: Productivity, discrimination, quality of labor, matched data

JEL Classification: J24, J15, J16, C43

Suggested Citation

Hellerstein, Judith K. and Neumark, David, Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set (April 2004). Public Policy Institute of California No. 2004.06. Available at SSRN: https://ssrn.com/abstract=536983

Judith K. Hellerstein

University of Maryland - Department of Economics ( email )

College Park, MD 20742
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David Neumark (Contact Author)

University of California, Irvine - Department of Economics ( email )

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HOME PAGE: http://www.socsci.uci.edu/~dneumark/

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IZA Institute of Labor Economics

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