Ronni Pavan

Understanding the City Size Wage Gap

In this paper, we decompose city size wage premia into various components. We base these decompositions on an estimated on-the-job search model that incorporates latent ability, search frictions, firm-worker match quality, human capital accumulation and endogenous migration between large, medium and small cities. Counterfactual simulations of the model indicate that variation in returns to experience and differences in wage intercepts across location type are the most important mechanisms contributing to observed city size wage premia. Variation in returns to experience is more important for generating wage premia between large and small locations while differences in wage intercepts are more important for generating wage premia betwen medium and small locations. Sorting on unobserved ability within education group and differences in labor market search frictions and distributions of firm-worker match quality contribute little to observed city size wage premia. These conclusions hold for separate samples of high school and college graduates.

Inequality and City Size

A strong positive monotonic relationship between wage inequality and city size developed between 1979 and 2007 in the United States. After accounting for differences in skill composition across cities of different sizes, we find that at least 23% of the nationwide increase in the variance of log hourly wages is explained by the more rapid growth in wage inequality in larger locations than in smaller locations. This influence occurred throughout the wage distribution, was most prevalent during the 1990s, and was mostly driven by more rapid growth in within-skill-group inequality in larger cities.

Career Choice and Wage Growth

In this article, I present structural estimates of a search model that flexibly incorporates general human capital accumulation along with career and firm choice, where a career is empirically identified as a combination of industry and occupation. I use these estimates to empirically distinguish between the relative importance of various factors for generating wage growth over the life cycle. Evidence presented in the article highlights the importance of considering the two-stage search process that originates from the model. In particular, I demonstrate that previous instrumental variables methods dramatically underestimate the importance of firm-specific matches for wage growth.

Family Income and Higher Education Choices: The Importance of Accounting for College Quality

In the examination of the determinants of educational choices, little attention has been devoted to the relationship between family income and the quality of higher education. Using the 1979 and 1997 waves of the NLSY, we show that family income significantly affects the quality of higher education, especially for high-ability individuals.While the impact of family income on college quality is significant in both samples, it has declined considerably over time for high-ability students. Overall, the trends we observe are highly consistent with increases in tuition across the quality spectrum, coupled with more generous merit-based aid at high-quality institutions.

The Specificity of General Human Capital: Evidence from College Major Choice

College graduates do not always pursue careers related to their major. Science majors working in jobs unrelated to their field of study earn approximately 30% lower wages than those working in related jobs. We develop a structural model of major choice and labor market outcomes that allows for skill uncertainty and differential accumulation of human capital across major. Our findings confirm that the average return to obtaining a science degree and working in a related job remains close to 30%. We also find that individuals are uncertain about their future productivity at the time of the college major decision.

On the Production of Skills and the Birth-Order Effect

First-born children tend to outperform their younger siblings on measures such as cognitive exams, wages, educational attainment, and employment. Using a framework similar to Cunha and Heckman (2008) and Cunha, Heckman, and Schennach (2010), this paper finds that differences in parents’ investments across siblings can account for more than one-half of the gap in cognitive skills among siblings. The study’s framework accommodates for endogeneity in parents’ investments, measurement error, missing observations, and dynamic impacts of parental investments.

The Role of Career Choice in Understanding Job Mobility

This paper presents a simple model that explains how the likelihood of job changes and their complexity changes over a workers career, and the empirical work presented here uses the life cycle patterns of mobility and their complexity to infer the relative importance of firm-specific versus career-specific concerns as determinants of mobility decisions. The estimates of the model indicate that the contemporaneous presence of two quality matches, one career-specific and one firm-specific, is necessary to understand the patterns of the data. The model also predicts that the welfare losses implied by a disappearance of a career can be on average twice as large as the losses implied by a plant closure.