Using twins to resolve the twin problem of having a bad job and a low wage

Working Papers 294 Petri Böckerman, Pekka Ilmakunnas, Jari Vainiomäki

We use data on twins matched to register-based information on earnings to examine the long-standing puzzle of non-existent compensating wage differentials. The use of twin data allows us to remove otherwise unobserved productivity differences that were the prominent reason for estimation bias in the earlier studies. Using twin differences we find evidence for positive compensation of adverse working conditions in the labor market.

Keywords: Compensating differentials, earnings, unobserved ability, productivity
Published: 30.9.2014
JEL: J28, J31
ISBN: 978-952-209-131-4 (pdf)
ISSN: 1795-1801 (pdf)
Publication (PDF)