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Industry Wage Differentials: How Many, Big and Significant Are They?

Author

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  • Kevin Reilly

    (Leeds University Business School)

  • Luisa Zanchi

    (Leeds University Business School)

Abstract

In this paper we examine three implementation and interpretation issues associated with Krueger and Summers’s (1988) method for calculating interindustry wage differentials. The literature tends to report a less than complete set of industry wage differentials; use the wrong standard errors; and misinterpret the meaning of the industry wage differentials. The solution to the first two issues follows from making explicit the restriction that the employment-weighted average of all industry wage effects is zero, the same restriction that Krueger and Summers are implicitly imposing on industry wage effects. All industries have thus a wage effect relative to an average worker net of any industry effect and correct standard errors are available via the Delta Method. Finally, we propose a method for analysing interindustry wage differentials as actual differences between wage levels expressed in percentage points and not as log points, which is the current misleading standard. Our procedure calculates actual average percentage wage differences by industry and avoids the distortion in differences across industries that log point comparisons engender. An application is provided, using the United States Outgoing Rotation Files of the Current Population Survey for 1989 and 1996 and so updates the work by Krueger and Summers (1988). (JEL: C12 and J31)

Suggested Citation

  • Kevin Reilly & Luisa Zanchi, 2002. "Industry Wage Differentials: How Many, Big and Significant Are They?," Labor and Demography 0209001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpla:0209001
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    References listed on IDEAS

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    11. Goux, Dominique & Maurin, Eric, 1999. "Persistence of Interindustry Wage Differentials: A Reexamination Using Matched Worker-Firm Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 492-533, July.
    12. Zanchi, Luisa, 1998. "Interindustry wage differentials in dummy variable models," Economics Letters, Elsevier, vol. 60(3), pages 297-301, September.
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    Cited by:

    1. Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Inter‐Industry Wage Differentials: How Much Does Rent Sharing Matter?," Manchester School, University of Manchester, vol. 79(4), pages 691-717, July.
    2. Philip Du Caju & François Rycx & Ilan Tojerow, 2012. "Wage structure effects of international trade in a small open economy: the case of Belgium," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(2), pages 297-331, June.
    3. Philip Du Caju & Gábor Kátay & Ana Lamo & Daphne Nicolitsas & Steven Poelhekke, 2010. "Inter-Industry Wage Differentials In EU Countries: What Do Cross-Country Time Varying Data Add to the Picture?," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 478-486, 04-05.
    4. Brenda Gannon & Robert Plasman & Francois Rycx & Ilan Tojerow, 2007. "Inter-Industry Wage Differentials and the Gender Wage Gap: Evidence from European Countries," The Economic and Social Review, Economic and Social Studies, vol. 38(1), pages 135-155.
    5. Robert Plasman & François Rycx & Ilan Tojerow, 2007. "Wage differentials in Belgium: the role of worker and employer characteristics," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(1), pages 11-40.
    6. Robert Plasman & François Rycx & Ilan Tojerow, 2006. "Industry wage differentials, unobserved ability, and rent-sharing : Evidence from matched worker-firm data, 1995-2002," Working Paper Research 90, National Bank of Belgium.
    7. Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Wage Structure Effects of International Trade: Evidence from a Small Open Economy," Working Papers CEB 11-011, ULB -- Universite Libre de Bruxelles.
    8. Magda, Iga & Rycx, François & Tojerow, Ilan & Valsamis, Daphné, 2008. "Wage Differentials across Sectors in Europe: An East-West Comparison," IZA Discussion Papers 3830, Institute of Labor Economics (IZA).
    9. Brenda Gannon & Brian Nolan, 2004. "Inter-Industry Wage Differentials in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 35(2), pages 157-182.
    10. Du Caju, Philip & Rycx, François & Tojerow, Ilan, 2008. "Rent-Sharing and the Cyclicality of Wage Differentials," IZA Discussion Papers 3844, Institute of Labor Economics (IZA).
    11. Camilo Morales-Jimenez, 2017. "The Cyclical Behavior of Unemployment and Wages under Information Frictions," 2017 Meeting Papers 366, Society for Economic Dynamics.
    12. Koirala, Govinda, 2007. "An analysis of labor wage differentials in Nepal," Journal of Asian Economics, Elsevier, vol. 18(4), pages 636-648, August.
    13. Robert Plasman & François Rycx & Ilan Tojerow, 2006. "Industry wage differentials, unobserved ability, and rent-sharing: evidence from matched employer-employee, 1992-2005," DULBEA Working Papers 06-14.RS, ULB -- Universite Libre de Bruxelles.

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    More about this item

    Keywords

    Industry Wage Differentials;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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