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Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity

  • Andrew B. Bernard
  • Stephen J. Redding
  • Peter K. Schott

We develop a method for identifying departures from relative factor price equality that is robust to unobserved variation in factor productivity. We implement this method using data on the relative wage bills of non-production and production workers across 170 local labor markets comprising the continental United States for 1972, 1992 and 2007. We find evidence of statistically significant differences in relative wages in all three years. These differences increase in magnitude over time and are related to industry structure in a manner that is consistent with neoclassical models of production.

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File URL: ftp://ftp2.census.gov/ces/wp/2012/CES-WP-12-32.pdf
File Function: First version, 2012
Download Restriction: no

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 12-32.

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Length: 36 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:cen:wpaper:12-32
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  1. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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  10. David S. Lee, 1999. "WAGE INEQUALITY IN THE UNITED STATES DURING THE 1980s: RISING DISPERSION OR FALLING MINIMUM WAGE?," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 977-1023, August.
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