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Behind the North-South divide: A decomposition analysis

  • Vizer, David
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    The paper applies modified Oaxaca-type analyses on the eighteen available waves of the British Household Panel Survey to decompose the wage gap among full time employees from either side of the North-South divide and identify its components that can be attributed to measurable worker- and labour market characteristics, and the part due to differences in the returns to these endowments. Further, by applying Juhn, Murphy and Pierce’s (1991) methodology, it is analysed, how changes in these underlying factors could explain the one quarter decline in the wage gap over the 1991 – 2009 period. The paper confirms the existence of a differential treatment effect by showing that only one fifth of the wage gap can be explained by observable differences. The magnitude of the unexplainable coefficient effect is so large, that the remarkable improvements in Northern occupational structure and human capital levels over the period could only translate into an actual decline in the wage gap, because it coincided with a period of increasing inequality among Northern occupational wage premia, which – as a by-product – increased the average Northern wage and this way counterbalanced the effects of the increasing Southern returns to experience, that alone could have increased the initial pay gap by half.

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    File URL: http://mpra.ub.uni-muenchen.de/28364/1/MPRA_paper_28364.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28364.

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    Date of creation: 12 Jan 2011
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    Handle: RePEc:pra:mprapa:28364
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    1. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    2. Ray Hudson, 1998. "Restructuring Region and State: the Case of North East England," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 89(1), pages 15-30, 02.
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    4. Cotton, Jeremiah, 1988. "On the Decomposition of Wage Differentials," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 236-43, May.
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    12. Machin, Steve, 1994. "Changes in the Relative Demand for Skills in the UK Labour Market," CEPR Discussion Papers 952, C.E.P.R. Discussion Papers.
    13. 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.
    14. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162.
    15. Steve Machin & Anna Vignoles, 2004. "Educational inequality: the widening socio-economic gap," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 107-128, June.
    16. Inmaculada Garcia & Jose Alberto Molina, 2002. "Inter-regional wage differentials in Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 9(4), pages 209-215.
    17. Scully, Gerald W, 1969. "Interstate Wage Differentials: A Cross Section Analysis," American Economic Review, American Economic Association, vol. 59(5), pages 757-73, December.
    18. Zhao Chen & Ming Lu & Guanghua Wan, 2010. "Inter-Industry Wage Differentials: An Increasingly Important Contributor to Urban China Income Inequality," Global COE Hi-Stat Discussion Paper Series gd09-130, Institute of Economic Research, Hitotsubashi University.
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