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Inter-Industry Wage Differentials and Unobserved Ability: Siblings Evidence from Five Countries

  • Björklund, Anders


    (SOFI, Stockholm University)

  • Bratsberg, Bernt


    (Ragnar Frisch Centre for Economic Research)

  • Eriksson, Tor


    (Aarhus School of Business)

  • Jäntti, Markus


    (SOFI, Stockholm University)

  • Raaum, Oddbjørn


    (Ragnar Frisch Centre for Economic Research)

This paper examines the role of unobserved ability in explaining inter-industry wage differentials, drawing on data on brothers. Such data allow us to account for unmeasured abilities due to common family and community factors shared by siblings. Important advantages of this approach are that we do not rely on assumptions of exogenous job mobility and that estimates reflect long-run wage differentials rather than short-run differences following switch of industry. The data sets come from four of the Nordic countries and the United States. We find that, in the Nordic countries, only a moderate proportion of the variability in industry wages is due to unobserved ability, while unmeasured factors explain as much as half of the industry wage variation observed in the United States. Accounting for such differences, we show that the U.S. inter-industry wage dispersion is similar to those of the Nordic countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1080.

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Length: 34 pages
Date of creation: Mar 2004
Date of revision:
Publication status: published in: Industrial Relations, 2007, 46 (1), 171-202
Handle: RePEc:iza:izadps:dp1080
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  1. Kahn, Lawrence M, 1998. "Collective Bargaining and the Interindustry Wage Structure: International Evidence," Economica, London School of Economics and Political Science, vol. 65(260), pages 507-34, November.
  2. Derek A. Neal & William R. Johnson, 1995. "The Role of Pre-Market Factors in Black-White Wage Differences," NBER Working Papers 5124, National Bureau of Economic Research, Inc.
  3. Kim, Dae Il, 1998. "Reinterpreting Industry Premiums: Match-Specific Productivity," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 479-504, July.
  4. Arai, Mahmood, 1994. " An Empirical Analysis of Wage Dispersion and Efficiency Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 31-50.
  5. Francine D. Blau & Lawrence Kahn, 2004. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," CESifo Working Paper Series 1139, CESifo Group Munich.
  6. John Bound & Gary Solon, 1998. "Double Trouble: On the Value of Twins-Based Estimation of the Return to Schooling," NBER Working Papers 6721, National Bureau of Economic Research, Inc.
  7. Richard B. Freeman & Ronald Schettkat, 2000. "Skill Compression, Wage Differentials and Employment: Germany vs. the US," NBER Working Papers 7610, National Bureau of Economic Research, Inc.
  8. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  9. Markus Jäntti & Eva Österbacka & Oddbjörn Raaum & Tor Eriksson & Anders Björklund, 2002. "Brother correlations in earnings in Denmark, Finland, Norway and Sweden compared to the United States," Journal of Population Economics, Springer, vol. 15(4), pages 757-772.
  10. 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.
  11. Holmlund, Bertil & Zetterberg, Johnny, 1991. "Insider effects in wage determination : Evidence from five countries," European Economic Review, Elsevier, vol. 35(5), pages 1009-1034, July.
  12. Barth, Erling & Zweimuller, Josef, 1992. "Labor Market Institutions and the Industry Wage Distribution: Evidence from Austria, Norway, and the U.S," Institute for Research on Labor and Employment, Working Paper Series qt1811h146, Institute of Industrial Relations, UC Berkeley.
  13. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
  14. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  15. Edin, Per-Anders & Zetterberg, Johnny, 1992. "Interindustry Wage Differentials: Evidence from Sweden and a Comparison with the United States," American Economic Review, American Economic Association, vol. 82(5), pages 1341-49, December.
  16. Mellow, Wesley & Sider, Hal, 1983. "Accuracy of Response in Labor Market Surveys: Evidence and Implications," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 331-44, October.
  17. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  18. Douglas A. Hibbs, Jr. & Håkan Locking, 1995. "Solidarity Wage Policies and Industrial Productivity in Sweden," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 22, pages 95-108.
  19. Michael P. Keane, 1993. "Individual Heterogeneity and Interindustry Wage Differentials," Journal of Human Resources, University of Wisconsin Press, vol. 28(1), pages 134-161.
  20. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, December.
  21. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800 Elsevier.
  22. repec:oup:qjecon:v:107:y:1992:i:4:p:1421-36 is not listed on IDEAS
  23. Edin, P.A. & Holmlund, B., 1992. "The Swedish Wage Structure : The Rise and Fall of Solidarity Policy," Papers 1992-13, Uppsala - Working Paper Series.
  24. repec:oup:qjecon:v:106:y:1991:i:3:p:869-84 is not listed on IDEAS
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