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The sources of interindustry wage differentials

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  • Ferreira, Priscila

Abstract

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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  • Ferreira, Priscila, 2009. "The sources of interindustry wage differentials," ISER Working Paper Series 2009-13, Institute for Social and Economic Research.
  • Handle: RePEc:ese:iserwp:2009-13
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