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Interindustry and Interregion Differentials: Mechanics and Interpretation

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  • John P. Haisken-DeNew
  • Christoph M. Schmidt

Abstract

In their seminal study on interindustry wage differentials, Krueger and Summers (1988) expressed estimated industry differences as deviations from a hypothetical employment-share weighted mean. Virtually the whole labor literature has followed their approach, yet most studies avoid calculating the exact standard errors of these differences. This note relates this problem to the general literature on dummy variables and their interpretation. It is demonstrated that the implementation of exact estimates involves only simple matrix operations, making any approximative procedure difficult to justify. Disregarding this conclusion will in practice, even with large samples, lead to substantially overstated standard errors of the estimated differentials and to the understatement of their overall variability. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • John P. Haisken-DeNew & Christoph M. Schmidt, 2000. "Interindustry and Interregion Differentials: Mechanics and Interpretation," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 516-521, August.
  • Handle: RePEc:tpr:restat:v:79:y:2000:i:3:p:516-521
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.1997.79.3.516
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    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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