One of the standard inquiries in work economics is why some employees are passist more than others within the very same industry. This column provides data from adverts on a huge US job website to investigate what"s behind these wage distinctions. The project titles provided in adverts capture even more variation in between tasks than conventional work-related classifications. By failing to recognise this, the previous literature has actually attributed also a lot of wage inequality to luck and also too bit to distinctions in worker and also firm attributes.

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Most contemporary work industries exhilittle bit a substantial degree of wage inehigh quality (e.g. Mortensen 2003, Horstein et al. 2007). One of the standard inquiries in labour economics is understanding the resources of this inetop quality. Why are some employees passist more than others? Do wage distinctions reflect meaningful differences in worker and also firm characteristics (such as occupation, the worker’s education and learning level or the firm’s sector of industry)? Or are wage distinctions the result of sheer luck in acquiring the appropriate job? The literature in this location finds that worker and also firm characteristics­­­­ explain at most half of the variation in weras across employees (e.g. Abowd et al. 1999). This says that luck plays an essential duty.

In a current examine, we burned brand-new light on this question by analysing task adverts on the big US employment webwebsite CareerBuilder.com (Marinescu and Wolthoff 2016). A huge advantage of these information compared to conventional information resources is that they contain the job titles that firms select to explain their positions, such as “Java programmer”. We document that these project titles contain most relevant indevelopment. In specific, the task titles are a lot more thorough than conventional work-related classifications in describing distinctions in the forced suffer or location of specialisation, separating between senior and junior accountants, or between Java and C++ programmers. We show that this information is crucially necessary. Unfavor traditional job-related classifications, job titles describe almost all of the wage variation across job openings; with the project title in hand also, we have the right to guess very accurately how a lot a project pays. Because of this, a project seeker cannot count on luck to find a high-wage project – high-wage jobs are just different kinds of work.

Wage variance

Our data collection has all project ads on CareerBuilder for the Chicago and Washington, DC locations in January 2011. Only approximately 20% of these project ads encompass information on the wage that the firm plans to pay.

This truth may raise the question of whether the posted weras are representative of the wperiods that are earned in the US work sector more generally. We create that this is the case by mirroring that the circulation of posted wages does not systematically differ from the distribution of earned wperiods in representative data sets such as the Current Population Survey (CPS). One of the dimensions in which the wperiods in the two data sets are strikingly equivalent is the explanatory power of occupations as captured by the Standard Occupational Group (SOC). In both data sets, the ideal version of this classification can account for simply under half of the wage variation.

While no finer work-related information is easily accessible in the CPS, the CareerBuilder information allow us to usage job titles rather. It turns out that the explanatory power of job titles significantly exceeds that of SOC codes – project titles define even more than 94% of the cross-sectional wage variation. An different method to assess the prominence of task titles is to first analyse to what degree the identity of the firm can explain wperiods, i.e. whether some firms systematically pay even more than others. We find that there are huge distinctions in pay throughout firms, and that firms that pay greater wages than other firms generally carry out so bereason they employ employees via various task titles.

The power of words

To much better understand these results, we analyse which words in the task title are especially important. We identify two different groups.

First, we discover that words that suggest a level of seniority within an occupation are important: not surprisingly, task titles that incorporate words prefer “manager”, “senior”, “executive” or “director” pay substantially better weras than project titles with words prefer “coordinator”, “assistant”, “entry” or “junior”. Second, words that show particular locations of expertise have actually considerable explanatory power as well: for example, “sales”, “engineer”, “consultant” or “java” are linked via better weras, while “accountant”, “marketing”, “recruiting” or “network” indicate lower wages.

One worry in interpreting these results is that firms might choose specific task titles to justify paying a greater or a reduced wage. That is, possibly “senior accountant” and a “junior accountant” positions are fundamentally the same, except for their weras. We show that this issue is unstarted by analysing workers’ application behaviour. The debate is as adheres to. If these positions only differ in their wages, then we would certainly intend two points. First, applicants to either position must be comparable in terms of their qualities. Second, the position supplying the higher wage – i.e. the senior accountant place – should entice more applicants bereason it pays even more.

Neither implication holds in our data. The characteristics of applicants differ across project titles within an occupation, with “manager”, “senior”, “executive”, or “director” positions attracting even more proficient applicants. In addition, the association between wperiods and the variety of applicants is negative within an occupation. This last reality may seem rather surprising at first sight, however it is continuous through the findings of a small literature that tries to establish the effect of a firm’s wage market on its variety of applications. Our information expose that tright here is an intuitive reason for these results: we uncover that project titles through words choose “manager”, “senior”, “executive” or “director” pay greater wages but lure fewer applicants, while words favor “coordinator”, “assistant”, “entry” or “junior” pay reduced wages but tempt more applicants (see Figures 1 and also 2). Hence, various job titles within the very same occupation are in fact essentially various positions, and the relation in between weras and also applicants need to be considered within a task title.

Figure 1 Word cloud of the words in job titles that are connected via a reduced wage for a offered occupation

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Note: The dimension of a word represents its frequency; the shade represents the magnitude of the impact, with a darker colour indicating an extra negative effect on the wage.

Figure 2 Word cloud of the words in job titles that are associated via more applicants for a given occupation

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Note: The dimension of a word represents its frequency; the shade represents the magnitude of the impact, via a darker colour indicating a much more positive effect on the number of applicants.

Lessons learnt

Summemerging, our outcomes suggest that there exists even more variation in between tasks in the US labour industry than captured by even the ideal level of SOC codes. By failing to recognise this, the previous literature has attributed too a lot of the wage inetop quality to luck and also as well little to meaningful distinctions in worker and firm characteristics. We uncover that the duty of luck in determining a worker’s wage is in fact quite small. This has actually vital effects for knowledge the task search behaviour of unemployed workers. For example, US labour market information indicate that the average duration of joblessness is not exceptionally long (e.g. Shimer 2012). This is rather puzzling if one believes that luck plays an important function in the determicountry of weras. Why do workers not search even more for a better-paying job? However, it is perfectly consistent through the idea that the function of luck is restricted – ongoing task search is not that helpful if a lot of better-paying tasks are out of reach because they call for even more experience or a various area of specialisation.

References

Abowd, J, F Kramarz and also D Margolis (1999), “High Wage Workers and also High Wage Firms,” Econometrica 67(2), 251-333.

Hornstein, A, P Krumarket and also G Violante (2007), “Frictional Wage Dispersion in Search Models: A Quantitative Assessment”, NBER Working Paper 13674.

Marinescu, I and also R Wolthoff (2016), “Opening the Babsence Box of the Matching Function: The Power of Words”, NBER Working paper 22508.

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Mortensen, D (2003), Wage Dispersion: Why Are Comparable Workers Paid Differently? MIT Press, Cambridge, Massachusetts.

Shimer, R (2012), “Reassessing the Ins and Outs of Unemployment,” Rewatch of Economic Dynamics 15(2), 127-148