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

39 Pages Posted: 20 Sep 2009  

Andrew B. Bernard

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

Stephen J. Redding

Princeton University

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

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

Andrew B. Bernard

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0302 (Phone)
603-646-9084 (Fax)

HOME PAGE: http://mba.tuck.dartmouth.edu/pages/faculty/Andrew.Bernard/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Stephen J. Redding

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

Peter K. Schott (Contact Author)

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-436-4260 (Phone)
203-436-6974 (Fax)

HOME PAGE: http://www.som.yale.edu/faculty/pks4

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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