RANKING FIRMS USING REVEALED PREFERENCE

Area of Science:

• Labor Economics
• Econometrics
• Sociology of Work

Background:

• Understanding worker preferences is key to analyzing labor markets.
• Employer-to-employer transitions offer insights into firm rankings and worker mobility.
• Previous research has explored wage determinants but often overlooks firm-specific preferences.

Purpose of the Study:

• To estimate workers' preferences for specific firms using employer-to-employer transition data.
• To quantify the role of compensating differentials in explaining worker mobility and earnings variation.
• To develop a method for ranking firms based on worker flow data.

Main Methods:

• Utilized U.S. administrative data on employer-to-employer transitions.
• Applied numerical linear algebra techniques to measure the central tendency of worker flows.
• Analyzed patterns of worker movement to identify preferences beyond layoffs or recruitment intensity.

Main Results:

• Identified a discernible ranking of firms based on worker transition patterns.
• Found significant evidence of compensating differentials, where workers move to lower-paying firms.
• Quantified that compensating differentials explain over half of the firm-specific variance in earnings.

Conclusions:

• Worker preferences for firms are measurable and influence labor market dynamics.
• Compensating differentials play a substantial role in explaining earnings inequality across firms.
• The methodology provides a novel approach to ranking firms based on worker choices.