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The sources of interindustry wage differentials

  • Ferreira, Priscila

We analyse the nature of interindustry wage differentials using Portuguese data. Es- timates from models controlling for observed worker and firm characteristics reveal sig- nificant and persistent raw interindustry di¤erentials, which questions the competitive model of the labour market. However, estimates controlling for unobserved worker het- erogeneity suggest that the raw di¤erentials are due to the concentration of high wage workers in certain industries and not to genuine di¤erences in compensation across industries. However, a complete decomposition shows that (i) firm effects on average explain 70% of the industry wage premia, and (ii) genuine and sizeable interindustry wage differentials exist. These di¤erentials are shown to increase the time to separation from firms, and are therefore compatible with the competitive model.

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Paper provided by Institute for Social and Economic Research in its series ISER Working Paper Series with number 2009-13.

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Date of creation: 31 Mar 2009
Date of revision:
Publication status: published
Handle: RePEc:ese:iserwp:2009-13
Contact details of provider: Postal: Publications Office, Institute for Social and Economic Research, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ UK
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  1. McKinley Blackburn & David Neumark, 1992. "Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1421-1436.
  2. Parent, Daniel, 2000. "Industry-Specific Capital and the Wage Profile: Evidence from the National Longitudinal Survey of Youth and the Panel Study of Income Dynamics," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 306-23, April.
  3. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
  4. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO.
  5. Robert Gibbons & Lawrence Katz, 1992. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 515-535.
  6. Goux, Dominique & Maurin, Eric, 1999. "Persistence of Interindustry Wage Differentials: A Reexamination Using Matched Worker-Firm Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 492-533, July.
  7. François Rycx & Ilan Tojerow & Daphné Valsamis, 2008. "Wage differentials across sectors in Europe: an east-west comparison," DULBEA Working Papers 08-17.RS, ULB -- Universite Libre de Bruxelles.
  8. Simon D. Woodcock, 2007. "Wage Differentials in the Presence of Unobserved Worker, Firm, and Match Heterogeneity," Discussion Papers dp07-10, Department of Economics, Simon Fraser University.
  9. Alan Carruth & William Collier & Andy Dickerson, 2004. "Inter-industry Wage Differences and Individual Heterogeneity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(5), pages 811-846, December.
  10. Boyan Jovanovic & Robert Moffitt, 1990. "An Estimate of a Sectoral Model of Labor Mobility," NBER Working Papers 3227, National Bureau of Economic Research, Inc.
  11. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
  12. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  13. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
  14. repec:ese:iserwp:2009-11 is not listed on IDEAS
  15. repec:ese:iserwp:2009-12 is not listed on IDEAS
  16. John Abowd & Francis Kramarz & Paul Lengermann & Kevin McKinney & Sébastien Roux, 2012. "Persistent inter‐industry wage differences: rent sharing and opportunity costs," IZA Journal of Labor Economics, Springer, vol. 1(1), pages 1-25, December.
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