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The Pervasive Absence of Compensating Differentials

Stéphane Bonhomme () and Gregory Jolivet

No 2005-28, Working Papers from Center for Research in Economics and Statistics

Abstract: We write and estimate a dynamic model of wages, amenities and labor mobility.Workers trade off wage and amenity offers when deciding whether to change jobs,while facing heterogenous mobility costs. We show that these frictions can turn strongindividual preferences for non wage characteristics into very small wage/amenity cor-relation in cross section. We use voluntary job-to-job transitions to identify workers'Marginal Willingness to Pay for amenities. The resulting selection model is solvedusing alternative types of constrained transitions in order to proxy the distribution ofjob offers. We take the model to a panel of nine European countries while control-ling for unobserved heterogeneity. Our estimates show large MWP, more than 20% ofthe wage, for amenities such as the type of work or job security. We also find strongevidence of heterogeneity in mobility costs, and consequently weak wage/amenity incross-section.

Date: 2005
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Journal Article: The pervasive absence of compensating differentials (2009) Downloads
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