Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108709
Authors: 
Carpenter, Jeffrey P.
Matthews, Peter Hans
Robbett, Andrea
Year of Publication: 
2015
Series/Report no.: 
IZA Discussion Papers 8820
Abstract: 
The theory of compensating differentials has proven difficult to test with observational data: the consequences of selection, unobserved firm and worker characteristics, and the broader macroeconomic environment complicate most analyses. Instead, we construct experimental, real-effort labor markets and offer an evaluation of the theory in a controlled setting. We study both the wage differentials that evolve between firms with varying degrees of disamenity and how these differentials are affected by worker mobility and therefore selection. Consistent with the theory, we find that riskier firms must pay significantly higher wages to attract workers. Further, when workers are mobile, they sort into firms according to their attitudes towards risk and, as a result, the compensating differential shrinks. Last, we are also able to mimic the biases associated with observational studies.
Subjects: 
compensating differential
sorting
experiment
real effort
risk aversion
ambiguity aversion
loss aversion
JEL: 
J31
D01
C92
Document Type: 
Working Paper

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