Match Effects

Simon Woodcock

MPRA Paper from University Library of Munich, Germany

Abstract: We present an empirical model of earnings that controls for observable and unobservable characteristics of workers (person effects), unmeasured characteristics of their employers (firm effects), and unmeasured characteristics of worker-firm matches (match effects). We interpret these as the returns to general human capital, firm-specific human capital, and match-specific human capital, respectively. We stress the importance of match effects because the returns to match-specific human capital will be incorrectly attributed to general and/or firm-specific human capital when match effects are omitted, and because general and specific human capital have very different implications for the economic cost of job destruction. We find that slightly more than half of observed variation in log earnings is attributable to general human capital, 22 percent is attributable to firm-specific human capital, and 16 percent to match-specific human capital. Specifications that omit match effects over-estimate the returns to experience by as much as 50 percent, over-estimate the returns to a college education by as much as 8 percent, attribute too much variation to person effects, and too little to firm effects. Our results suggest that considerable earnings variation previously attributed to general human capital -- both observed and unobserved -- is in fact attributable to workers sorting into higher-paying firms and better worker-firm matches.

Keywords: human capital; fixed effects; mixed effects; person and firm effects; linked employer-employee data (search for similar items in EconPapers)
JEL-codes: C23 J24 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Match effects (2015)
Working Paper: Match Effects (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:154

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