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

27 Pages Posted: 7 Jan 2007

See all articles by Simon D. Woodcock

Simon D. Woodcock

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 2007

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.

Keywords: wage differentials, unobserved heterogeneity, employer-employee data

JEL Classification: J31, C23

Suggested Citation

Woodcock, Simon D., Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity (May 2007). Available at SSRN: https://ssrn.com/abstract=955407 or http://dx.doi.org/10.2139/ssrn.955407

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
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Germany

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