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Industry Wage Differentials: A Firm-Based Approach

Author

Listed:
  • David Card
  • Jesse Rothstein
  • Moises Yi

Abstract

We revisit the estimation of industry wage differentials using linked employer-employee data. Cross-sectional industry differences overstate pay premiums due to unmeasured heterogeneity. Estimates based on models with person and industry effects understate true premiums: workers who switch to a higher-premium industry typically move from higher-paying firms in their origin industry to lower-paying firms in their destination (and vice versa). The corrected standard deviation of log wage effects is 0.122 across narrowly defined industries and is similar at higher levels of aggregation. Higher-skilled workers sort to higher-pay industries. Premiums and worker sorting are more variable in cities with higher-wage firms and higher-skilled workers.

Suggested Citation

  • David Card & Jesse Rothstein & Moises Yi, 2024. "Industry Wage Differentials: A Firm-Based Approach," Journal of Labor Economics, University of Chicago Press, vol. 42(S1), pages 11-59.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/728803
    DOI: 10.1086/728803
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    Cited by:

    1. William Arbour & David J. Price, 2025. "What Occupations Do," Working Papers tecipa-800, University of Toronto, Department of Economics.
    2. Sofia Wixe & Johan Klaesson, 2025. "Which Path do You Choose, and Does It Matter? Industry Trajectories and Subsequent Earnings of Forced Migrants," Journal of Labor Research, Springer, vol. 46(3), pages 130-161, December.
    3. David Card & Jesse Rothstein & Moises Yi, 2026. "How Do Neighborhoods and Firms Affect Intergenerational Mobility?," Working Papers 26-18, Center for Economic Studies, U.S. Census Bureau.
    4. Palladino, Marco G. & Roulet, Alexandra & Stabile, Mark, 2025. "Narrowing industry wage premiums and the decline in the gender wage gap," Labour Economics, Elsevier, vol. 94(C).
    5. Colmer, Jonathan & Krause, Eleanor & Lyubich, Eva & Voorheis, John, 2024. "Transitional costs and the decline in coal: worker-level evidence," LSE Research Online Documents on Economics 126795, London School of Economics and Political Science, LSE Library.
    6. Ellora Derenoncourt & François Gerard & Lorenzo Lagos & Claire Montialoux, 2025. "What Do (Thousands of) Unions Do? Union-Specific Pay Premia and Inequality," NBER Working Papers 34139, National Bureau of Economic Research, Inc.
    7. Patrick M. Kline, 2024. "Firm Wage Effects," NBER Working Papers 33084, National Bureau of Economic Research, Inc.
    8. Yannis Galanakis & Amanda Gosling, 2026. "Mind the (gender pay) gap: the role of board gender composition," Journal of Population Economics, Springer;European Society for Population Economics, vol. 39(1), pages 1-32, March.
    9. Edoardo Di Porto & Marco Pagano & Vincenzo Pezone & Raffaele Saggio & Fabiano Schivardi, 2024. "Careers and Wages in Family Firms: Evidence from Matched Employer-Employee Data," NBER Working Papers 33219, National Bureau of Economic Research, Inc.
    10. David Autor & David Dorn & Gordon Hanson & Maggie R. Jones & Bradley Setzler, 2024. "Places versus People: The Ins and Outs of Labor Market Adjustment to Globalization," Working Papers 24-78, Center for Economic Studies, U.S. Census Bureau.
    11. Patrick M. Kline, 2025. "Branching Fixed Effects: A Proposal for Communicating Uncertainty," NBER Working Papers 34486, National Bureau of Economic Research, Inc.
    12. David Card & Jesse Rothstein & Moises Yi, 2024. "Reassessing the Spatial Mismatch Hypothesis," AEA Papers and Proceedings, American Economic Association, vol. 114, pages 221-225, May.
    13. Borjas, George, 2026. "The H-1B Wage Gap, Visa Fees, and Employer Demand," IZA Discussion Papers 18487, IZA Network @ LISER.
    14. Rebecca Jack & Daniel Tannenbaum & Brenden Timpe, 2025. "The Parenthood Gap: Firms and Earnings Inequality After Kids," Opportunity and Inclusive Growth Institute Working Papers 110, Federal Reserve Bank of Minneapolis.
    15. Eckel, Carsten & Yeaple, Stephen R., 2024. "Inefficient labor market sorting," Journal of Economic Theory, Elsevier, vol. 221(C).
    16. Kline, Patrick, 2024. "Firm wage effects," Handbook of Labor Economics,, Elsevier.
    17. Hou, Shihang & Heath Milsom, Luke, 2025. "The Role of Firms and Occupations in Wage Inequality," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325461, Verein für Socialpolitik / German Economic Association.
    18. Jose Garcia-Louzao & Karolina Jonuškaitė, 2025. "The public-private sector wage gap in Lithuania: evidence from social security data," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 25(1), pages 72-87.
    19. Jorge Pérez Pérez & José G. Nuño-Ledesma, 2024. "Workers, Workplaces, Sorting, and Wage Dispersion in Mexico," Working Papers 2024-06, Banco de México.
    20. Stefan Leknes & Jorn Rattso & Hildegunn E Stokke, 2025. "Intangible capital and agglomeration economies," Working Paper Series 20425, Department of Economics, Norwegian University of Science and Technology.
    21. Gordon H. Hanson & Enrico Moretti, 2025. "Where Have All the Good Jobs Gone? Changes in the Geography of Work in the US, 1980-2021," NBER Working Papers 33631, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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