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Expected ability to pay and interindustry wage structure in manufacturing

  • David G. Brown
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    The purpose of this article is to develop and to test the following hypothesis: wage level differences among manufacturing industries result primarily from industry-by-industry differences in the employers' estimates of their future abilities to pay wages. The industries' past and present assessments of their abilities to sustain high wages and, at the same time, high profits is the primary determinant of the level of wages in industry A relative to industry B. To understand fully this hypothesis and its subsequent analysis, several matters must be made clear initially. First, the hypothesis concerns relative, not absolute, levels of wages. The topic is wage structure. The question, "Why are petroleum industry wages 35% greater than wages in the meat products industry?" differs from the question, "Why are wages in the petroleum refining industry around $5100 per year in absolute terms?" Secondly, the hypothesis concerns wage levels at a point in time, not changes over time. And finally, the hypothesis is demand, not supply, oriented: employers' estimates of how much they are able to pay are far more important determinants of the interindustry wage structure than the employees' supply prices, and relative wage levels are determined primarily by differences in demand. (Author's abstract courtesy EBSCO.)

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    Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

    Volume (Year): 16 (1962)
    Issue (Month): 1 (October)
    Pages: 45-62

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    Handle: RePEc:ilr:articl:v:16:y:1962:i:1:p:45-62
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