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Testing for Wage Discrimination in U.S. Manufacturing
September 2012
Working Paper Number:
CES-12-23
In spite of the large literature on labor market discrimination, the quantity of solid evidence on discrimination is relatively limited. This is because evidence of discrimination is difficult to obtain. Two individuals may be treated equally, but this does not prove discrimination unless we can show that the differences in treatment were not justified by differences in productivity. The method most commonly used to identify wage discrimination, the Oaxaca decomposition, is flawed because any omitted variables that are correlated with gender will contribute to the unexplained portion of the wage gap, leading to an over- or under-estimation of wage discrimination. Audit studies provide more direct evidence of differential treatment, but are costly to carry out. Only a small number of studies attempt to measure worker productivity to see if wage differences are justified. This may be because the data needed to measure productivity are difficult to obtain. This paper tests for wage discrimination by gender and race by estimating relative productivity from 2002 Census of Manufacturing data linked to demographic information on workers from Longitudinal Employer-Household Dynamics (LEHD) files. Comparing the estimated productivity ratios to the observed wage ratios, I conclude that females and blacks face wage discrimination in US manufacturing.
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Firm Market Power and the Earnings Distribution
December 2011
Working Paper Number:
CES-11-41
Using the Longitudinal Employer Household Dynamics (LEHD) data from the United States Census Bureau, I compute firm-level measures of labor market (monopsony) power. To generate these measures, I extend the dynamic model proposed by Manning (2003) and estimate the labor supply elasticity facing each private non-farm firm in the US. While a link between monopsony power and earnings has traditionally been assumed, I provide the first direct evidence of the positive relationship between a firm\'s labor supply elasticity and the earnings of its workers. I also contrast the semistructural method with the more traditional use of concentration ratios to measure a firm\'s labor market power. In addition, I provide several alternative measures of labor market power which account for potential threats to identification such as endogenous mobility. Finally, I construct a counterfactual earnings distribution which allows the effects of firm market power to vary across the earnings distribution. I estimate the average firm\'s labor supply elasticity to be 1.08, however my findings suggest there to be significant variability in the distribution of firm market power across US firms, and that dynamic monopsony models are superior to the use of concentration ratios in evaluating a firm\'s labor market power. I find that a one-unit increase in the labor supply elasticity to the firm is associated with wage gains of between 5 and 18 percent. While nontrivial, these estimates imply that firms do not fully exercise their labor market power over their workers. Furthermore, I find that the negative earnings impact of a firm\'s market power is strongest in the lower half of the earnings distribution, and that a one standard deviation increase in firms\' labor supply elasticities reduces the variance of the earnings distribution by 9 percent.
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Further Evidence from Census 2000 About Earnings by Detailed Occupation for Men and Women: The Role of Race and Hispanic Origin
November 2011
Working Paper Number:
CES-11-37
A 2004 report by the author reviewed data from Census 2000 and concluded "There is a substantial gap in median earnings between men and women that is unexplained, even after controlling for work experience (to the extent it can be represented by age and presence of children), education, and occupation." This paper extends the analysis and concludes that once those characteristics are controlled for, no further explanatory power is attributable to race or Hispanic origin.
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Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans
November 2011
Working Paper Number:
CES-11-36
In light of the recent concerns regarding the solvency of Social Security's Old-Age, Survivors and Disability Insurance (OASDI), private pensions may play an increasingly important role in retirement welfare of US retirees. However, the private pension landscape has evolved in ways that may result in lower private pension wealth for retirees. One recent such phenomenon involves the conversion of traditional defined benefit pension plans to cash balance plans, which resulted in lower pension benefits for many workers. In this study, I investigate how characteristics of the firm's workforce influenced whether the firm converted their traditional pension plan to a cash balance plan and how these characteristics related to the firm's pension plan policy more generally. Using the Longitudinal Employer-Household Data and pension plan data from the Department of Labor/Internal Revenue Service and the Pension Benefit Guaranty Corporation, I found little evidence of workforce age distribution effects on the likelihood of DB plan conversion to a cash balance plan in the 1990s. More generally, I consistently find positive associations between firms with older and more female workforces and defined contribution plans during the same time.
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Long-Run Earnings Volatility and Health Insurance Coverage: Evidence from the SIPP Gold Standard File
October 2011
Working Paper Number:
CES-11-35
Despite the notable increase in earnings volatility and the attention paid to the growing ranks of the uninsured, the relationship between career earnings and short- and mediumrun health insurance status has been ignored due to a lack of data. I use a new dataset, the SIPP Gold Standard File, that merges health insurance status and demographics from the Survey of Income and Program Participation with career earnings records from the Social Security Administration (SSA) and the Internal Revenue Service (IRS) to examine the relationship between long-run family earnings volatility and health insurance coverage. I find that more volatile career earnings are associated with an increased probability of experiencing an uninsured episode, with larger effects for men, young workers, and the unmarried. These findings are consistent with the 'scarring' literature, and suggest the importance of safety-net measures for job losses and health insurance coverage.
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The Emergence of Wage Discrimination in U.S. Manufacturing
June 2011
Working Paper Number:
CES-11-18
This paper examines the hypothesis that wage discrimination emerged at the beginning of the twentieth century. I test for wage discrimination by estimating the female-male productivity ratio from samples of manufacturing firms in the northeast, and then comparing the estimated productivity ratio to the wage ratio. I find that women did not face wage discrimination in manufacturing during the nineteenth century. In 1900 there was wage discrimination against women in white-collar jobs, but not in blue-collar jobs. Wage discrimination persisted, and in 2002 the female-male wage ratio was less than the productivity ratio.
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Job Referral Networks and the Determination of Earnings in Local Labor Markets
December 2010
Working Paper Number:
CES-10-40
Referral networks may affect the efficiency and equity of labor market outcomes, but few studies have been able to identify earnings effects empirically. To make progress, I set up a model of on-the-job search in which referral networks channel information about high-paying jobs. I evaluate the model using employer-employee matched data for the U.S. linked to the Census block of residence for each worker. The referral effect is identified by variations in the quality of local referral networks within narrowly defined neighborhoods. I find, consistent with the model, a positive and significant role for local referral networks on the full distribution of earnings outcomes from job search.
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Comparing Measures of Earnings Instability Based on Survey and Adminstrative Reports
August 2010
Working Paper Number:
CES-10-15
In Celik, Juhn, McCue, and Thompson (2009), we found that estimated levels of earnings instability based on data from the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP) were reasonably close to each other and to others' estimates from the Panel Study of Income Dynamics (PSID), but estimates from unemployment insurance (UI) earnings were much larger. Given that the UI data are from administrative records which are often posited to be more accurate than survey reports, this raises concerns that measures based on survey data understate true earnings instability. To address this, we use links between survey samples from the SIPP and UI earnings records in the LEHD database to identify sources of differences in work history and earnings information. Substantial work has been done comparing earnings levels from administrative records to those collected in the SIPP and CPS, but our understanding of earnings instability would benefit from further examination of differences across sources in the properties of changes in earnings. We first compare characteristics of the overall and matched samples to address issues of selection in the matching process. We then compare earnings levels and jobs in the SIPP and LEHD data to identify differences between them. Finally we begin to examine how such differences affect estimates of earnings instability. Our preliminary findings suggest that differences in earnings changes for those in the lower tail of the earnings distribution account for much of the difference in instability estimates.
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The Effect of Firm Compensation Structures on Employee Mobility and Employee Entrepreneurship of Extreme Performers
March 2010
Working Paper Number:
CES-10-06
Previous studies of employee entrepreneurship have not considered the rewards available to potential entrepreneurs inside of their current organizations. This study hopes to fill this gap by investigating how the firm's compensation structure, an important strategic decision closely scrutinized by human resource management, affects the mobility and entrepreneurship decisions of its employees, particularly those employees at the extreme ends of the performance distribution. Using a comprehensive U.S. Census data set covering all employees in the legal services industry across ten states for fifteen years, we find that high performing employees are less likely to leave firms with highly dispersed compensation structures. However, if high performers do leave employers that offer highly disperse compensation structures, they are more likely to join new firms. Less talented employees, on the other hand, are more likely to leave firms with greater pay dispersion. Unlike high performers, we find that low performers are less likely to move to new ventures when departing firms with highly disperse compensation structures.
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A Formal Test of Assortative Matching in the Labor Market
November 2009
Working Paper Number:
CES-09-40
We estimate a structural model of job assignment in the presence of coordination frictions due to Shimer (2005). The coordination friction model places restrictions on the joint distribution of worker and firm effects from a linear decomposition of log labor earnings. These restrictions permit estimation of the unobservable ability and productivity differences between workers and their employers as well as the way workers sort into jobs on the basis of these unobservable factors. The estimation is performed on matched employer-employee data from the LEHD program of the U.S. Census Bureau. The estimated correlation between worker and firm effects from the earnings decomposition is close to zero, a finding that is often interpreted as evidence that there is no sorting by comparative advantage in the labor market. Our estimates suggest that his finding actually results from a lack of sufficient heterogeneity in the workforce and available jobs. Workers do sort into jobs on the basis of productive differences, but the effects of sorting are not visible because of the composition of workers and employers.
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