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Inter-Industry Wage Inequality: Persistent differences and turbulent equalization

Author

Listed:
  • Patrick Mokre

    (Department of Economics, New School for Social Research)

  • Miriam Rehm

    (AK Wien)

Abstract

Persistent inter-industry wage differentials are an enduring puzzle for neoclassical economics. This paper applies the classical theory of ‘real competition’ to inter-industry wage differentials. Theoretically, we argue that competitive wage determination can be decomposed into equalizing, dispersing and turbulently equalizing factors. Empirically, we show graphically and econometrically for 31 U.S. industries in 1987-2016 that wage differentials, like regulating profit rates, are governed by turbulent equalization. Furthermore, we apply a fixed effects OLS as well as a hierarchical Bayesian inference model and find that the link between regulating profit rates and wage differentials is positive, significant and robust.

Suggested Citation

  • Patrick Mokre & Miriam Rehm, 2018. "Inter-Industry Wage Inequality: Persistent differences and turbulent equalization," Working Papers 1818, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1818
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    More about this item

    Keywords

    Wage inequality; industry wages; inter-industry wage differentials; incremental wages; real competition; convergence; gravitation; panel data; Bayesian econometrics;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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