The persistence of wages

• Type: Article in International Scientific Journal
• Date: 2023

Authors

Anabela Carneiro (Author) FEP; Portugal, P (Author) Other; Raposo, P (Author) Other; Rodrigues, PMM (Author) Other

Journal

Title: Journal of Econometrics

Vol. 233 No. 2

Pages: 596-611

ISSN: 0304-4076

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 1 Citation

Scopus - 2 Citations

Other information

Authenticus ID: P-00W-0BQ

DOI: 10.1016/j.jeconom.2021.11.014

Abstract (EN): This paper documents the extent to which wage persistence can be explained by permanent worker, employer, and match heterogeneity. Standard methods used to perform such decompositions for industry or racial wage gaps are inappropriate for decomposing wage persistence in dynamic panel data models because of the incidental parameter problem. When we apply these methods without bias correction, we find that the majority, 59.3 percent, of wage persistence is explained by worker heterogeneity, with employer and match heterogeneity explaining 29.7 and 11.0 percent, respectively. We evaluate three methods for addressing incidental parameter bias using a Monte Carlo study. An empirical application to Portuguese linked employer-employee data shows that the uncorrected estimates tend to understate wage persistence by around 24 to 42 percent, depending on the choice of the bias correction estimator used, and overstate the extent to which wage persistence arises from permanent unobserved heterogeneity. Furthermore, results indicate that the uncorrected estimates overstate the role of permanent worker heterogeneity, and understate the role of firm heterogeneity.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 16