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Estimating Compensating Wage Differentials Using Voluntary Job Changes: Evidence from Germany

Ernesto Villanueva ()

ILR Review, 2007, vol. 60, issue 4, 544-561

Abstract: The author develops a model predicting that in a labor market that attaches a wage premium to jobs with a disamenity (a compensating wage differential), the premium's upper bound will be defined by the average wage change of voluntary job movers whose consumption of the disamenity rises as a result of their move; its lower bound, by the wage change of those whose consumption of the disamenity falls. These predictions will not hold if, as predicted by a “segmented†labor market model, the labor market attaches a wage penalty to workplace disamenities. Using longitudinal data on job characteristics and wages in Germany in 1984–2001, the author estimates the market returns to four workplace disamenities: heavy workload, job insecurity, poor hours regulation, and a mismatch between skills possessed and skills required. The results broadly support the existence of compensating differentials in the German labor market.

Date: 2007
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DOI: 10.1177/001979390706000405

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