Testing for Factor Price Equality in the Presence of Unobserved Factor Quality Differences

Bernard, Andrew B.; Redding, Stephen J.; Schott, Peter K.

doi:10.2139/ssrn.1475708

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Testing for Factor Price Equality in the Presence of Unobserved Factor Quality Differences

Tuck School of Business Working Paper No. 2009-71

US Census Bureau Center for Economic Studies Paper No. CES-WP 09-22

39 Pages Posted: 20 Sep 2009

See all articles by Andrew B. Bernard

Andrew B. Bernard

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Peter K. Schott

Yale University - School of Management; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Date Written: August 1, 2009

Abstract

We develop a method for identifying departures from relative factor price equality across regions that is valid under general assumptions about production, markets and factors. Application of this method to the United States reveals substantial and increasing deviations in relative skilled wages across labor markets in both 1972 and 1992. These deviations vary systematically with labor markets industry structure both in the cross section and over time.

Keywords: Factor Price Equality, Regional Wages, Neoclassical Trade Theory, Labor Market

JEL Classification: F16, J30, R23, C14

Suggested Citation: Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K., Testing for Factor Price Equality in the Presence of Unobserved Factor Quality Differences (August 1, 2009). Tuck School of Business Working Paper No. 2009-71, US Census Bureau Center for Economic Studies Paper No. CES-WP 09-22, Available at SSRN: https://ssrn.com/abstract=1475708 or http://dx.doi.org/10.2139/ssrn.1475708