Estimating the Marginal Willingness to Pay for Commuting

Abstract

With informational frictions on the labor market, hedonic wage regressions provide biased estimates of the willingness to pay for job attributes. We show that a recent theoretical result, which states that variation in job durations does provide good estimates in case of a basic on-the-job search model, can be generalized to a wide class of search models. We apply this result by estimating the marginal willingness of employed workers to pay for commuting, using Dutch longitudinal data. The average willingness to pay for one hour commuting is estimated to equal almost half of the hourly wage rate.

Wealth effects on job preferences

“…Instead of using wage differentials to identify the value of non-wage characteristics, differential job quitting can be exploited. By observing the relative importance of differences in non-wage characteristics vis-à-vis wages in determining job leaving, it is possible to estimate workers' marginal willingness to pay (MWP) for physical working conditions (Gronberg and Reed (1994)), commuting distance (van Ommeren et al (2000)) or the remaining duration of a contract (van Ommeren and Hazans (2008)). The approach allows an estimation of MWP, a structural preference parameter, in absence of a full structural model.…”

The Workers' Value of the Remaining Employment Contract Duration

“…Herzog and Schlottmann (1990) and Gronberg and Reed (1994) reported higher estimates for the willingness to pay to avoid jobinduced risk. Van Ommeren et al (2000) and Manning (2003) found higher estimates for the willingness to pay to avoid commuting. Similarly, Bartik et al (1992) compared the MWP for residential characteristics based on residential moving behaviour and hedonic price methods and showed that the MWP estimates for crime reduction and school quality are higher than those based on conventional estimates.…”

“…These considerations have generated a number of studies aimed at estimating the MWP for job attributes using data on job moving behaviour and comparing the MWP estimates with conventional estimates (Herzog and Schlottmann, 1990;Gronberg and Reed, 1994;Van Ommeren et al, 2000;Manning, 2003). 1 These studies point to considerably higher estimates than those based on conventional hedonic wage methods.…”

“…We demonstrate that the workers' MWP for job attributes can be derived from data on job search activity. This estimation method is based on the same type of theoretical search model as those studies in which MWP estimates are derived from data on job moving behaviour (Gronberg and Reed, 1994;Van Ommeren et al, 2000). In these search models, it is assumed that workers are involuntarily separated due to firm firings (e.g.…”

“…We relax this assumption by assuming that the involuntarily separation rate may depend on job attributes. This extension is essential, because both Gronberg and Reed (1994) and Van Ommeren et al (2000) explicitly assume that the involuntary separation rate is exogenous of job attributes. Gronberg and Reed (1994, p. 913) state "The assumption that the involuntary separation rate is exogenous of firm wage and nonwage characteristics is crucial for empirically identifying workers' marginal willingness to pay for job attributes."…”