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This paper develops the nonparametric identification of models with production complementarities, worker-firm specific disutility of labour and search frictions. Mobility in the model is subject to preference shocks, and we assume that firms can write wage contracts. We develop a constructive proof for the nonparametric identification of the model primitives from matched employer-employee data. We use the estimated model to decompose the sources of wage dispersion into worker heterogeneity, compensating differentials, and search frictions that generate between-firm and within-firm dispersion. We find that compensating differentials are substantial on average, but the contribution differs greatly between the lowest and highest types of workers. Finally, we use the model to provide an economic interpretation of several empirical regularities.
Authors

Research Associate University of Chicago
Thibaut is a Research Associate at the IFS and an Assistant Professor in Economics at the University of Chicago.

Research Associate University of Minnesota
Jeremy is a Professor of Economics at Cornell University; Research Consultant at the Federal Reserve Bank of Minneapolis.

Research Fellow Yale University
Costas is a Research Fellow of the IFS and a Professor of Economics at Yale University and a Visiting Professor at University College London.

Research Fellow Sciences Po and University College London
Jean-Marc is a Research Fellow of the IFS and a Professor of Economics at Sciences Po, Paris, and University College London.
Working Paper details
- DOI
- 10.1920/wp.ifs.2024.2924
- Publisher
- Institute for Fiscal Studies
Suggested citation
Lamadon, T et al. (2024). Labour market matching, wages, and amenities. 24/29. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/labour-market-matching-wages-and-amenities (accessed: 14 February 2025).
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