Estimation of a Roy/Search/Compensating Differential Model of the Labor Market

Christopher Taber and Rune Vejlin

No 22439, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we develop a model capturing key features of the Roy model, a search model, compensating differentials, and human capital accumulation on-the-job. We establish which features of the model can be non-parametrically identified and which can not. We estimate the model and use it to asses the relative contribution of the different factors for overall wage inequality. We find that Roy model inequality is the most important component accounting for the majority of wage variation. We also demonstrate that there is substantial interaction between the other features - most notably the importance of the job match obtained by search frictions varies from around 9% to around 29% depending on how we account for other features. Compensating differentials and search are both very important for explaining other features of the data such as the variation in utility. Search is important for turnover, but so is compensating differentials: 1/3 of all choices between two jobs would have resulted in a different outcome if the worker only cared about wages.

JEL-codes: J3 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-dge, nep-lma and nep-upt
Note: LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as Christopher Taber & Rune Vejlin, 2020. "Estimation of a Roy/Search/Compensating Differential Model of the Labor Market," Econometrica, Econometric Society, vol. 88(3), pages 1031-1069, May.

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Related works:
Journal Article: Estimation of a Roy/Search/Compensating Differential Model of the Labor Market (2020)
Working Paper: Estimation of a Roy/Search/Compensating Differential Model of the Labor Market (2016)
Working Paper: Estimation of a Roy/Search/Compensating Differential Model of the Labor Market (2012)
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