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Inter-Regional Wage Differentials In Portugal: An Analysis Across The Wage Distribution

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  • Joao Pereira
  • Aurora Galego

Abstract

The issue of regional wage differentials is relevant both for policy proposes and general public discussion. A sound knowledge of the distribution of wage inequalities and their causes is essential for defining policy measures for reducing spatial income inequalities. A range of empirical studies have analysed regional wage differentials for a number of countries (Blackaby and Manning, 1990; Blackaby and Murphy, 1995; Duranton and Monastiriotis, 2002; García and Molina, 2002). Typically, these studies are based on OLS estimates and the decomposition method devised by Blinder (1973) and Oaxaca (1973), which focuses on the analysis of wages differences at the mean of the conditional earnings distribution. This approach provides a reasonable description of wage distributions when they are unimodal, symmetric and have similar variances (Butcher and Dinardo, 2002). However, in general, these conditions may be not fulfilled. Therefore, wage differentials should be analysed along the entire wage distribution. This paper seeks to build on previous research in a number of different ways. Firstly, unlike most previous studies, we estimate regional wage equations by quantile regression in order to analyse the effect of covariates at several points on the wage distribution. Secondly, we apply the quantile-based decomposition method suggested by Machado and Mata (2005) and Melly (2005a, 2006) to decompose regional wage differentials at several points of the wage distribution. This method is of a semi-parametric nature, which allows for the estimation of significance tests and confidence intervals of wage decomposition effects (characteristics and returns). This marks a clear difference in relation to the non-parametric method suggested by Dinardo et al. (1996) and Butcher and Dinardo (2002) and applied by Motellón et al. (2011), which does not allow such significance tests to be performed. To the best of our knowledge, this is the first application of the methods proposed by Machado and Mata (2005) and Melly (2005a, 2006) in the context of regional wage differentials. We consider the case of Portugal, a small country with significant and quite stable regional wage differentials (Vieira et al., 2006; Pereira and Galego, 2011). Our findings reveal that coefficients estimates along the wage distribution for each region and between the various regions are not stable. Moreover, these findings confirm previous evidence as to the existence of significant regional wage differences between the Lisboa region and the other regions, and also reveal increasing differentials across the wage distribution. Finally, with regard to the regional wage decomposition, we conclude that both the part relating to differences in characteristics and the part relating to differences in returns to these characteristics are in general statistically significant and increase across the entire wage distribution.

Suggested Citation

  • Joao Pereira & Aurora Galego, 2012. "Inter-Regional Wage Differentials In Portugal: An Analysis Across The Wage Distribution," ERSA conference papers ersa12p19, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa12p19
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    Cited by:

    1. Rycx, Francois & Saks, Yves & Tojerow, Ilan, 2016. "Misalignment of Productivity and Wages across Regions? Evidence from Belgian Matched Panel Data," IZA Discussion Papers 10336, Institute for the Study of Labor (IZA).
    2. Aurora Galego & João Pereira, 2014. "Decomposition of Regional Wage Differences Along the Wage Distribution in Portugal: The Importance of Covariates," Environment and Planning A, , pages 2514-2532.
    3. Joao Pereira & Aurora Galego, 2013. "Intra-Regional Regional Wage Inequality In Portugal: A Quantile Based Decomposition Analisys," ERSA conference papers ersa13p158, European Regional Science Association.
    4. Paula Herrera-Idárraga & Enrique López-Bazo & Elisabet Motellón, 2016. "Regional Wage Gaps, Education and Informality in an Emerging Country: The Case of Colombia," Spatial Economic Analysis, Taylor & Francis Journals, pages 432-456.
    5. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
    6. Jean-Baptiste Combes & Eric Delattre & Bob Elliott & Diane Skåtun, 2015. "Hospital staffing and local pay: an investigation into the impact of local variations in the competitiveness of nurses’ pay on the staffing of hospitals in France," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(7), pages 763-780, September.
    7. Murillo Huertas, Inés P. & Ramos, Raul & Simón, Hipólito, 2017. "Revisiting Interregional Wage Differentials: New Evidence from Spain with Matched Employer-Employee Data," IZA Discussion Papers 11122, Institute for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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