Does Unmeasured Ability Explain Inter-industry Wage Differentials?
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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Volume (Year): 59 (1992)
Issue (Month): 3 (July)
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