Essays on Firm Compensation Policy and Confidentiality Protection and Imputation in the Quarterly Workforce Indicators

Title of dissertation: ESSAYS ON FIRM COMPENSATION POLICY AND CONFIDENTIALITY PROTECTION AND IMPUTATION IN THE QUARTERLY WORKFORCE INDICATORS Bryce Stephens, Doctor of Philosophy, 2006 Dissertation directed by: Professor John C. Haltiwanger Department of Economics This thesis is comprised of three chapters. The first chapter develops a statistical model that enriches the role that firms play in wage determination, allowing firms to influence both average wages as well as the returns to observable worker characteristics. I exploit the hierarchical nature of a unique employer-employee linked dataset maintained by the U.S. Census Bureau’s Longitudinal EmployerHousehold Dynamics Program, estimating a multilevel statistical model of earnings that accounts for firm-specific deviations in average wages as well as the returns to components of human capital – race, gender, education, and experience – while also controlling for person-level heterogeneity in earnings. Results suggest that there is significant variation in the returns to worker characteristics across firms. First, estimates of the parameters of the covariance matrix of firm-specific returns are statistically significant. Firms that tend to pay higher average wages also tend to pay higher than average returns to worker characteristics; firms that tend to reward highly the human capital of men also highly reward the human capital of women. Second, the firm-specific returns account for roughly 7% of the variation in wages – approximately 30% of the variation in wages explained by firm-specific intercepts alone. The second chapter (joint with John M. Abowd and Lars Vilhuber) and third chapter discuss the confidentiality protections and imputation of place-of-work in the Quarterly Workforce Indicators produced by the Census Bureau’s Longitudinal Employer-Household Dynamics Program as a part of its Local Employment Dynamics Estimates partnership with 37 state Labor Market Information offices. Both chapters provide a discussion of methodology as well as assessments of the impact of the confidentiality protections and imputation of place-of-work on the Quarterly Workforce Indicators public use measures. ESSAYS ON FIRM COMPENSATION POLICY AND CONFIDENTIALITY PROTECTION AND IMPUTATION IN THE QUARTERLY WORKFORCE INDICATORS by Bryce Stephens Dissertation submitted to the Faculty of the Graduate School of the University of Maryland, College Park in partial fulfillment of the requirements for the degree of Doctor of Philosophy 2006 Advisory Committee: Professor John C. Haltiwanger, Chair/Advisor Professor John M. Abowd, Advisor Professor John Shea, Advisor Professor John Chao Professor John Iceland c © Copyright by Bryce Stephens 2006 DEDICATION This thesis is dedicated to my parents Bruce and Cathy Stephens. ii ACKNOWLEDGMENTS I would like to thank the members of my dissertation committee and particularly Professors John C. Haltiwanger, John Shea, and John Abowd for their encouragement, support, and advice on all three chapters of this thesis. The first chapter benefitted greatly from comments received from participants in the macroeconomics brown bag seminar at the Department of Economics, University of Maryland. All three chapters benefitted from helpful comments from Simon Woodcock, Lars Vilhuber, and other staff at the Longitudinal Employer-Household Program. My parents Bruce and Cathy Stephens and sister Jessica Stephens have been an endless source of support during my years in the graduate program of economics at the University of Maryland and during the time spent writing this thesis. Finally, a special thanks is due to my partner Boaz Green without whom I may have never had the courage to finish this dissertation. iii TABLE OF CONTENTS List of Tables vi List of Figures x 1 Wage Dispersion, Compensation Policy, and the Role of Firms 1 1.