Template-Type: ReDIF-Paper 1.0
Author-Name: Jeanne Tschopp
Author-X-Name-First: Jeanne
Author-X-Name-Last: Tschopp
Author-Email: jtschopp@economics.ryerson.ca
Author-Workplace-Name: Department of Economics, Ryerson University, Toronto, Canada

Title: Wage Formation: Towards Isolating Search and Bargaining Effects from the Marginal Product

Abstract: This paper estimates the importance of workers’ outside options in wage determination. In models
of search and bargaining, a worker’s wage is determined by the marginal product of labour and by a
weighted average of wages in alternate jobs. Thus, the nature of the wage equation makes it difficult to
isolate changes in workers’ outside options that are independent from changes in the marginal product
of labour. This paper builds on the predictions of a search and bargaining model with multiple cities,
industries and occupations to propose novel identification strategies. Using a unique administrative
panel database for Germany, the study exploits differences in both the employment composition across
cities and in job-specific skill transferability as sources of variation for identification. The main finding
of the paper is that a 10% increase in the outside options of a worker generates a 7% wage increase.

Classification-JEL: J30, J31, J60, J62.
Keywords: WWages, search and bargaining, marginal product, sectoral and occupational mobility, cities.
Length: 80 pages
Creation-Date: 2015-09
Number: 055
File-URL: http://economics.ryerson.ca/workingpapers/wp055.pdf
File-Format: Application/pdf
Handle: RePEc:rye:wpaper:wp055