Full Citation

Title: Compensating Wage Differentials in Labor Markets: Empirical Challenges and Applications

Citation Type: Journal Article

Publication Year: 2023

ISBN:

ISSN: 0895-3309

DOI: 10.1257/jep.37.3.189

NSFID:

PMCID:

PMID:

Abstract: The model of compensating wage differentials is among the cornerstone models of equilibrium wage determination in labor economics. However, empirical estimates of compensating differentials have faced persistent credibility challenges. This article summarizes the Rosen model of compensating differentials and chronicles the advances, setbacks, and lessons learned from empirical studies. The progression from cross-sectional to panel models alleviated biases caused by unobserved human capital but yielded new insights into the importance of other biases, including those caused by labor market frictions and endogenous job mobility. I discuss recent approaches that use matched employer-employee data and quasi-random variation in job amenities to address some of these challenges. I then present two examples of applications of compensating differentials: the evaluation public health and safety policies that rely on the value of statistical life, and the measurement and interpretation of earnings inequality.

Url: https://www.aeaweb.org/articles?id=10.1257/jep.37.3.189

User Submitted?: No

Authors: Lavetti, Kurt

Periodical (Full): Journal of Economic Perspectives

Issue: 3

Volume: 37

Pages: 189-212

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Poverty and Welfare

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