Does Unmeasured Ability Explain Inter-Industry Wage Differentials?
AbstractThis paper provides empirical assessments of the two leading explanations of measured inter-industry wage differentials: (1) true wage differentials exist across industries, and (2) the measured differentials simply reflect unmeasured differences in workers' productive abilities. First, we summarize the existing evidence on the unmeasured-ability explanation, which is based on first-differenced regressions using patched Current Population Survey (CPS) data. We argue that these existing approaches implicitly hypothesize that unmeasured productive ability is equally rewarded in all industries. Second, we construct a simple model in which unmeasured ability in not equally valued in all industries; instead, there is matching. This model illustrates two endogeneity problems inherent in the first-differenced regressions using CPS data: whether a worker changes jobs in endogenous, as is the industry of the new job the worker finds. Third, we propose two new empirical approaches designed to minimize these endogeneity problems. We implement these procedures on a sample that allows us to approximate the experiment of exogenous job loss: a sample of workers displaced by plant closings. We conclude from our findings using this sample that neither of the contending explanations fits the evidence without recourse to awkward modifications, but that a modified version of the true-industry-effects explanation fits more easily than does any existing version of the unmeasured-ability explanation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3182.
Date of creation: Nov 1989
Date of revision:
Publication status: published as Review of Economic Studies, Vol. 59, pp. 515-535, (July 1992).
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Gibbons, Robert & Katz, Lawrence F, 1992. "Does Unmeasured Ability Explain Inter-industry Wage Differentials?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(3), pages 515-35, July.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jovanovic, Boyan & Moffitt, Robert, 1990.
"An Estimate of a Sectoral Model of Labor Mobility,"
Journal of Political Economy, University of Chicago Press,
University of Chicago Press, vol. 98(4), pages 827-52, August.
- Jovanovic, Boyan & Moffitt, Robert, 1988. "An Estimate Of A Sectoral Model Of Labor Mobility," Working Papers, C.V. Starr Center for Applied Economics, New York University 88-32, C.V. Starr Center for Applied Economics, New York University.
- Boyan Jovanovic & Robert Moffitt, 1990. "An Estimate of a Sectoral Model of Labor Mobility," NBER Working Papers 3227, National Bureau of Economic Research, Inc.
- Richard B. Freeman, 1983.
"Longitudinal Analyses of the Effects of Trade Unions,"
NBER Working Papers
1207, National Bureau of Economic Research, Inc.
- Freeman, Richard B, 1984. "Longitudinal Analyses of the Effects of Trade Unions," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(1), pages 1-26, January.
- Freeman, Richard Barry, 1984. "Longitudinal Analyses of the Effects of Trade Unions," Scholarly Articles 4631951, Harvard University Department of Economics.
- Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
- Nickell, Stephen & Wadhwani, Sushil B, 1989.
"Insider Forces and Wage Determination,"
CEPR Discussion Papers
310, C.E.P.R. Discussion Papers.
- Nickell, S. & Wadhwani, S., 1989. "Insider Forces And Wage Determination," Papers, London School of Economics - Centre for Labour Economics 334, London School of Economics - Centre for Labour Economics.
- Nickell, S. & Wadhwani, S., 1989. "Insider Forces And Wage Determination," Economics Series Working Papers 9972, University of Oxford, Department of Economics.
- Solon, Gary, 1988. "Self-selection bias in longitudinal estimation of wage gaps," Economics Letters, Elsevier, vol. 28(3), pages 285-290.
- Lawrence F. Katz, 1986.
"Efficiency Wage Theories: A Partial Evaluation,"
NBER Working Papers
1906, National Bureau of Economic Research, Inc.
- Addison, John T & Portugal, Pedro, 1989. "Job Displacement, Relative Wage Changes, and Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(3), pages 281-302, July.
- Bull, Clive & Jovanovic, Boyan, 1988. "Mismatch versus Derived-Demand Shift as Causes of Labour Mobility," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(1), pages 169-75, January.
- Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(1), pages 113-34, February.
- Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
- William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.