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Compensating Wage Differentials in Stable Job Matching Equilibrium

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  • Han, Seungjin
  • Yamaguchi, Shintaro

Abstract

This paper studies implicit pricing of non-wage job characteristics in the labour market using a two-sided matching model. It departs from the previous literature by allowing worker heterogeneity in productivity, which gives rise to a double transaction problem in a hedonic model. Deriving sufficient conditions under which assortative matching is the unique stable job-worker matching, we show that observed wage differentials between jobs reflect not only compensating wage differentials, but also worker productivity gaps between the jobs. We find that the job-worker matching pattern determines the extent to which compensating wage differentials are confounded with the worker productivity gap effect.

Suggested Citation

  • Han, Seungjin & Yamaguchi, Shintaro, 2012. "Compensating Wage Differentials in Stable Job Matching Equilibrium," Microeconomics.ca working papers seungjin_han-2012-4, Vancouver School of Economics, revised 27 Feb 2013.
    • Handle: RePEc:ubc:pmicro:seungjin_han-2012-4
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    File URL: http://socserv.mcmaster.ca/han/research/CWD.pdf
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    References listed on IDEAS

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    4. Paul Sullivan, & Ted To, 2013. "Job Dispersion and Compensating Wage Differentials," Working Papers 469, U.S. Bureau of Labor Statistics.

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    More about this item

    Keywords

    hedonic model; heterogeneity; two-sided matching; matching pattern; wage differential; equalizing difference; worker productivity;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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