Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71655
Authors: 
Torres, Sónia
Portugal, Pedro
Addison, John T.
Guimarães, Paulo
Year of Publication: 
2013
Series/Report no.: 
Discussion Paper Series, Forschungsinstitut zur Zukunft der Arbeit 7276
Abstract: 
This paper estimates a wage equation with three high-dimensional fixed effects, using a longitudinal matched employer-employee dataset covering virtually all Portuguese wage earners over a little more than two decades. The variation in log real hourly wages is decomposed into different components related to worker, firm, and job title characteristics (both observed and unobserved) and a residual component. It is found that worker permanent heterogeneity is the most important source of wage variation (36.0 percent) and that the unobserved component plays a more important role (21.0 percent) than the observed component (15.0 percent) in explaining wage differentials. Firm permanent effects are less important overall (28.7 percent) and are due in almost equal parts to the unobserved component and the observed component. Job title effects emerge as the least important dimension but they still explain close to 10 percent of wage variation. We found definitive evidence of positive assortative matching.
Subjects: 
high dimensional fixed effects
wage decomposition
assortative matching
JEL: 
J2
J41
Document Type: 
Working Paper

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