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Does Unmeasured Ability Explain Inter-industry Wage Differentials?

  • Gibbons, Robert
  • Katz, Lawrence F

This paper provides empirical assessments of the two leading explanations of measured interindustry wage differentials: (1) true wage differentials exist across industries and (2) the measured differentials simply reflect unmeasured differences in workers' productive abilities. First, the authors summarize the existing evidence on the unmeasured-ability explanation. Second, the authors construct a simple model that shows that if matching is important then endogenous job-change decisions can create important self-selection biases even in first-differenced estimates of industry wage differentials. Third, the authors analyze a sample that approximates the experiment of exogenous job loss. Copyright 1992 by The Review of Economic Studies Limited.

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Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 59 (1992)
Issue (Month): 3 (July)
Pages: 515-35

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Handle: RePEc:bla:restud:v:59:y:1992:i:3:p:515-35
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  1. Jovanovic, Boyan & Moffitt, Robert, 1988. "An Estimate Of A Sectoral Model Of Labor Mobility," Working Papers 88-32, C.V. Starr Center for Applied Economics, New York University.
  2. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
  3. Nickell, S. & Wadhwani, S., 1989. "Insider Forces And Wage Determination," Papers 334, London School of Economics - Centre for Labour Economics.
  4. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
  5. Bull, Clive & Jovanovic, Boyan, 1988. "Mismatch versus Derived-Demand Shift as Causes of Labour Mobility," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 169-75, January.
  6. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
  7. 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, vol. 93(6), pages 1077-1125, December.
  8. Richard B. Freeman, 1983. "Longitudinal Analyses of the Effects of Trade Unions," NBER Working Papers 1207, National Bureau of Economic Research, Inc.
  9. Solon, Gary, 1988. "Self-selection bias in longitudinal estimation of wage gaps," Economics Letters, Elsevier, vol. 28(3), pages 285-290.
  10. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
  11. Addison, John T & Portugal, Pedro, 1989. "Job Displacement, Relative Wage Changes, and Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 281-302, July.
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