Match Effects

49 Pages Posted: 20 Sep 2006 Last revised: 12 Sep 2008

See all articles by Simon D. Woodcock

Simon D. Woodcock

Simon Fraser University; Institute for the Study of Labor (IZA)

Date Written: August 2008

Abstract

We present direct evidence of the importance of matching in wage determination. It is based on an empirical specification that yields structural estimates of the returns to person-, firm-, and match-specific determinants of match productivity. We call these person, firm, and match effects. The distinction between these components is important, because they have different implications for the persistence of individual earnings and the returns to employment mobility. We find that match effects, which have been ignored in previous work, are an important determinant of earnings dispersion. They explain 16 percent of variation in earnings, and much of the change in earnings when workers change employer. Specifications that omit match effects substantially over-estimate the returns to experience, attribute too much variation to personal heterogeneity, and underestimate the extent to which good workers sort into employment at good firms.

Keywords: matching, sorting, linked employer-employee data, wage dispersion, person and firm effects, fixed effects, random effects, human capital

JEL Classification: C23, J20

Suggested Citation

Woodcock, Simon D., Match Effects (August 2008). Available at SSRN: https://ssrn.com/abstract=931529 or http://dx.doi.org/10.2139/ssrn.931529

Simon D. Woodcock (Contact Author)

Simon Fraser University ( email )

Dept. of Economics
8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

HOME PAGE: http://www.sfu.ca/~swoodcoc

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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