Modeling Labor Markets with Heterogeneous Agents and Matches
May 2002
Working Paper Number:
tp-2002-19
Abstract
I present a matching model with heterogeneous workers, firms, and worker-fim
matches. The model generalizes the seminal Jovanovic (1979) model to the case of
heterogeneous agents. The equilibrium wage is linear in a person-specific component,
a firm-specific component, and a match specific component that varies with tenure.
Under certain conditions, the equilibrium wage takes a simpler structure where the
match specific component does not vary with tenure. I discuss fixed- and mixedeffect
methods for estimating wage models with this structure on longitudinal linked
employer-employee data. The fixed effect specification relies on restrictive identification
conditions, but is feasible for very large databases. The mixed model requires less
restrictive identification conditions, but is feasible only on relatively small databases.
Both the fixed and mixed models generate empirical person, firm, and match effects
with characteristics that are consistent with predictions from the matching model; the
mixed model moreso than the fixed model. Shortcomings of the fixed model appear to
be artifacts of the identification conditions.
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:
econometric,
model,
employee,
employ,
employed,
endogenous,
heterogeneous,
heterogeneity,
tenure,
hiring,
employing,
wage regressions,
wages employment,
worker,
hire,
matched,
matching,
wage data,
unemployed
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Employer Identification Numbers,
Longitudinal Employer Household Dynamics,
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