Finally a Smoking Gun? Compensating Differentials and the Introduction of Smoking Bans

Using the staggered introduction of smoking bans in the German hospitality industry over 2007–2008, I find a robust 2.4 percent decline in the daily earnings of workers in bars and restaurants associated with the most comprehensive smoking ban. This effect is unlikely to be driven by a decline in hospitality revenues or hours worked but is consistent with a simple model of compensating differentials. (JEL I12, I18, J22, J31, J81, L83)

Imperfect Competition, Compensating Differentials, and Rent Sharing in the US Labor Market

We quantify the importance of imperfect competition in the US labor market by estimating the size of labor market rents earned by American firms and workers. We construct a matched employer-employee panel dataset by combining the universe of US business and worker tax records for the period 2001–2015. Using this panel data, we identify and estimate an equilibrium model of the labor market with two-sided heterogeneity where workers view firms as imperfect substitutes because of heterogeneous preferences over nonwage job characteristics. The model allows us to draw inference about imperfect competition, worker sorting, compensating differentials, and rent sharing. (JEL D24, H24, H25, J22, J24, J31, J42)

Immigration, Working Conditions, and Compensating Differentials

The large inflow of less-educated immigrants into the United States in recent decades may have affected US natives’ labor market outcomes in many ways, including their working conditions. Although the general consensus is that low-skilled immigrants tend to hold “worse” jobs than US natives, the impact of immigration on natives’ working conditions has received little attention. This study examines how immigration has affected US natives’ occupational exposure to workplace hazards and the compensating differential paid for such exposure from 1990 to 2018. Results indicate that immigration causes less-educated natives’ exposure to workplace hazards to fall, and instrumental variables results show a larger impact among women than among men. The corresponding compensating differential appears to fall among men, but not after accounting for immigration-induced changes in the financial returns to occupational skills.

Working-time flexibility is (not the same) for all: Evidence from a right-to-request reform

Employed mothers often incur in a trade-off between lower wages and working-time flexibility, and such compensating differentials contribute to persistent gender gaps in labour markets. I ask to what extent working-time flexibility is sought after by those who are not parents of young children, if similar trade-offs may ensue, and with what consequences for disparities among and between women and men. I evaluate the effects of a 2014 reform that extended the “right to request” working-time flexibility from parents of young children to all employees in the UK. Using a difference-in-differences design, I find that women without young children reduce their working hours and move to part-time employment. These adjustments are coupled with a reduction in job-related stress and monthly earnings, but not hourly wage rates. Effects are sizeable, suggesting that right-to-request laws can enhance working-time flexibility within workplaces and mitigate gaps between women with and without children. This holds mainly for the tertiary-educated though, and, as no accompanying changes are observed among men, gender gaps in working hours and earnings are unintendedly amplified. Implications are drawn for both compensating differentials theory and working-time policies, also in light of the current surge in flexible working.

Do Female Occupations Pay Less but Offer More Benefits?

Workers in predominantly female occupations have, on average, lower wages compared to workers in predominantly male occupations. Compensating differentials theory suggests that these wage differences occur because women select into occupations with lower pay but more fringe benefits. Alternatively, devaluation theory suggests that these wage differences occur because work performed by women is not valued as highly as work performed by men. One theory assumes that workers choose between wages and benefits. The other assumes that workers face constraints that restrict their wages and benefits. To examine whether female occupations pay less but offer more benefits, I used individual-level data from the Medical Expenditures Panel Survey and occupation-level data from the American Community Survey and from the Occupational Information Network. Contrary to compensating differentials theory, results from multivariate regression analysis provide little evidence that benefits explain wage differences between male and female occupations. Instead, consistent with devaluation theory, workers in female occupations are less likely to be offered employer health insurance coverage and are less likely to have retirement plans compared with workers in male occupations.

Estimation of a Roy/Search/Compensating Differential Model of the Labor Market

In this paper, we develop a model that captures key components of the Roy model, a search model, compensating differentials, and human capital accumulation on‐the‐job. We establish which components of the model can be non‐parametrically identified and which ones cannot. We estimate the model and use it to assess the relative contribution of the different factors for overall wage inequality. We find that variation in premarket skills (the key feature of the Roy model) is the most important component to account for the majority of wage variation. We also demonstrate that there is substantial interaction between the other components, most notably, that the importance of the job match obtained by search frictions varies from around 4% to around 29%, depending on how we account for other components. Inequality due to preferences for non‐pecuniary aspects of the job (which leads to compensating differentials) and search are both very important for explaining other features of the data. Search is important for turnover, but so are preferences for non‐pecuniary aspects of jobs as one‐third of all choices between two jobs would have resulted in a different outcome if the worker only cared about wages.