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Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity

Author

Listed:
  • Andrew B. Bernard
  • Stephen J. Redding
  • Peter K. Schott

Abstract

We develop a method for identifying departures from relative factor price equality that is robust to unobserved variation in factor productivity. We implement this method using data on the relative wage bills of nonproduction and production workers across 170 local labor markets comprising the continental United States for 1972, 1992, and 2007. We find evidence of statistically significant differences in relative wages in all three years. These differences increase in magnitude over time and are related to industry structure in a manner that is consistent with neoclassical models of production. (JEL J31, J61, R23)

Suggested Citation

  • Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2013. "Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity," American Economic Journal: Microeconomics, American Economic Association, vol. 5(2), pages 135-163, May.
    • Handle: RePEc:aea:aejmic:v:5:y:2013:i:2:p:135-63
    DOI: 10.1257/mic.5.2.135
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    Citations

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    Cited by:

    1. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of US Manufacturing Employment," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 47-72, Spring.
    2. Stephen J. Redding, 2020. "Trade and Geography," NBER Working Papers 27821, National Bureau of Economic Research, Inc.
    3. Chiara Carboni & Elisabetta Iossa & Gianpiero Mattera, 2017. "Barriers to Public Procurement: A Review and Recent Patterns in the EU," IEFE Working Papers 92, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    4. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779, Elsevier.
    5. Lorenzo Rotunno & Adrian Wood, 2015. "Wages and endowments in a globalised world," Economics Papers 2015-W11, Economics Group, Nuffield College, University of Oxford.
    6. Nicole Maestas & Kathleen J. Mullen & David Powell, 2023. "The Effect of Population Aging on Economic Growth, the Labor Force, and Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 306-332, April.
    7. Rotunno, Lorenzo & Wood, Adrian, 2020. "Wage inequality and skill supplies in a globalised world," Journal of Comparative Economics, Elsevier, vol. 48(3), pages 529-547.
    8. Kozo KIYOTA & Yoshinori KUROKAWA, 2017. "Factor Intensity Reversals Redux," Discussion papers 17021, Research Institute of Economy, Trade and Industry (RIETI).
    9. Florian Oswald, 2015. "Regional Shocks, Migration and Homeownership," Working Papers hal-03459804, HAL.
    10. Florian Oswald, 2015. "Regional Shocks, Migration and Homeownership," 2015 Meeting Papers 759, Society for Economic Dynamics.
    11. Liboreiro, Pablo R., 2025. "Multi-factor, multi-country testing of the Heckscher-Ohlin theorem without factor price equalization: A critical view," Structural Change and Economic Dynamics, Elsevier, vol. 73(C), pages 354-367.
    12. Michael Beenstock, 2017. "How internally mobile is capital?," Letters in Spatial and Resource Sciences, Springer, vol. 10(3), pages 361-374, October.
    13. Schott, Peter & Yang, Natalie & Eckert, Fabian & Fort, Teresa, 2020. "Imputing Missing Values in the US Census Bureau's County Business Patterns," CEPR Discussion Papers 14352, C.E.P.R. Discussion Papers.
    14. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2013. "Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity," American Economic Journal: Microeconomics, American Economic Association, vol. 5(2), pages 135-163, May.
    15. Jonathan I. Dingel, 2017. "The Determinants of Quality Specialization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1551-1582.
    16. Wenya Cheng & John Morrow, 2018. "Firm Productivity Differences From Factor Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 66(1), pages 126-171, March.
    17. repec:esx:essedp:729 is not listed on IDEAS
    18. Kozo Kiyota, 2023. "Spatially uneven pace of deindustrialisation within a country," The World Economy, Wiley Blackwell, vol. 46(7), pages 2187-2230, July.
    19. repec:spo:wpmain:info:hdl:2441/n1d9kd7k48keoo4brb07foqbd is not listed on IDEAS
    20. Cheng, Wenya & Morrow, John & Tacharoen, Kitjawat, 2012. "Productivity as if space mattered: an application to factor markets across China," LSE Research Online Documents on Economics 48930, London School of Economics and Political Science, LSE Library.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity (AEJ:MI 2013) in ReplicationWiki

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