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Contracting-out and the Interindustry Wage Structure: Do Norms of Internal Equity Matter in Wage Determination?

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  • Samuel G. Berlinski

    (Oxford University)

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    Abstract

    This paper compares the wage of a worker performing an activity for an outside contractor with the wage that the firm contracting for this service would have paid were this worker on its payroll (i.e., working in-house). If norms of internal equity were a binding constraint, the wage paid by the outside contractor should not be expected to be identical to the in-house wage. Our results, obtained using data from the U.S. Current Population Survey and the Input-Output matrix, are consistent with the view that norms of internal equity are binding.

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1053.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:1053

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    1. Peracchi, Franco & Welch, Finis, 1995. "How representative are matched cross-sections? Evidence from the Current Population Survey," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 153-179, July.
    2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
    3. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
    4. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, Elsevier, vol. 20(2), pages 231-259, April.
    5. Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc.
    6. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 474-75, June.
    7. Michael P. Keane, 1993. "Individual Heterogeneity and Interindustry Wage Differentials," Journal of Human Resources, University of Wisconsin Press, vol. 28(1), pages 134-161.
    8. Thaler, Richard H, 1989. "Interindustry Wage Differentials," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(2), pages 181-93, Spring.
    9. Gregory, Allan W & Veall, Michael R, 1985. "Formulating Wald Tests of Nonlinear Restrictions," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1465-68, November.
    10. Peter C.B. Phillips & Joon Y. Park, 1986. "On the Formulation of Wald Tests of Nonlinear Restrictions," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 801, Cowles Foundation for Research in Economics, Yale University.
    11. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
    12. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 255-83, May.
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