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Analysing wage differences between the USA and Germany using proportional hazards models

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  • Behr, Andreas
  • Pötter, Ulrich

Abstract

We analyse differences between the wage distributions in the USA and Germany in 2001 both for women and men. The empirical analysis is based on the decomposition of differences using Cox's marginal (partial) likelihood. The approach based on rank invariant estimators such as Cox's is borrowed from the literature on failure time data. Donald et al. (2000) pioneered this approach. However, they did not use the full power of the semi-parametric approach. Instead, they argued for using a piecewise constant hazard rate model. We improve on their work by showing that the semi-parametric features of Cox's marginal likelihood are as appropriate for the analysis of wage decompositions and as easy to interpret. Moreover, we extend their approach by allowing for nonlinear regression effects. We will show empirically that this formulation will both increase the flexibility of their approach and improve the discriminatory power between wage regimes.

Suggested Citation

  • Behr, Andreas & Pötter, Ulrich, 2006. "Analysing wage differences between the USA and Germany using proportional hazards models," Beiträge zur angewandten Wirtschaftsforschung 16, University of Münster, Center of Applied Economic Research Münster (CAWM).
  • Handle: RePEc:zbw:cawmbg:16
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    References listed on IDEAS

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    1. repec:mes:challe:v:34:y:1991:i:6:p:58-60 is not listed on IDEAS
    2. Martins, Pedro S. & Pereira, Pedro T., 2004. "Does education reduce wage inequality? Quantile regression evidence from 16 countries," Labour Economics, Elsevier, vol. 11(3), pages 355-371, June.
    3. Stephen G. Donald & David A. Green & Harry J. Paarsch, 2000. "Differences in Wage Distributions Between Canada and the United States: An Application of a Flexible Estimator of Distribution Functions in the Presence of Covariates," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 609-633.
    4. Paul Beaudry & David A. Green, 2003. "Wages and Employment in the United States and Germany: What Explains the Differences?," American Economic Review, American Economic Association, vol. 93(3), pages 573-602, June.
    5. 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 410-442, June.
    6. Suen, Wing, 1997. "Decomposing Wage Residuals: Unmeasured Skill or Statistical Artifact?," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 555-566, July.
    7. 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.
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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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