Wage dynamics in the presence of unobserved individual and job heterogeneity

Laura Hospido

Labour Economics, 2015, vol. 33, issue C, 81-93

Abstract: This paper develops an error-components model for wages that incorporates individual fixed effects, job-specific effects, and a persistent shock with an autoregressive structure over time. The novel feature of the model is that the estimation of this dynamic persistence is robust to any distributional form for the unobserved individual and job components, and the relationship between them. Then, additional assumptions are considered to separately identify the relative magnitude of these two components. In the data drawn from the PSID, we find that — once individual and job-specific effects are taken into account — the estimated persistence is significant but small. In addition, the ratio of the estimated variance of the job-specific effects to the variance of the individual time-invariant component is 40%.

Keywords: Panel data; Dynamic models; Individual wages; Unobserved heterogeneity; Job changes (search for similar items in EconPapers)
JEL-codes: C23 J31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:33:y:2015:i:c:p:81-93

DOI: 10.1016/j.labeco.2015.03.012

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