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Estimating Compensating Wage Differentials with Endogenous Job Mobility

Estimated effect of fatality risk on log wage

We demonstrate a strategy for using matched employer-employee data to correct endogenous job mobility bias when estimating compensating wage differentials. Applied to fatality rates in the census of jobs in Brazil between 2003-2010, we show that common approaches to eliminating ability bias amplify bias from nonrandom assignment to jobs. We establish empirical conditions under which our estimates are equivalent to preferences in a model of frictional search over differentiated firms, and show the identifying conditions are supported in Brazil. Our results suggest that standard panel models are misspecified, and that our proposed model eliminates latent ability and endogenous mobility biases.