Inter-Industry Wage Differences and Theories of Wage Determination

52 Pages Posted: 28 May 2004 Last revised: 17 Sep 2010

See all articles by William T. Dickens

William T. Dickens

Northeastern University - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Boston; Brookings Institution

Lawrence F. Katz

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1987

Abstract

Numerous studies have shown large differences in wages for apparently similar workers across industries. These findings pose a challenge to standard model s of labor market behavior. A problem with past studies of industry wage differences is that they have failed to distinguish between union and nonunion workers. Many economists may expect union workers wages to be set in a noncompetitive fashion but would be surprised if nonunion wages were. We examine the differences in wages across industries for both union and nonunion workers. We find that even after controlling for a wide range of personal characteristics and geographic location large wage differences persist for both union and nonunion workers. Furthermore the premiums of union and nonunion workers are highly correlated. We review past studies which demonstrate that industry wage premiums are also highly correlated across countries and have been very similar over many decades. We present new evidence that the wages of different occupations are highly correlated across industries -- that is if any occupation in an industry is highly paid all occupations are. We also review the evidence which suggests that people who move from low to high paying industries receive a large fraction of the industry wage premium and that those who move from high to low paying industries lose the premium. Finally, we review the evidence on the correlates of industry wage differences. Quit rates, human capital variables, capital labor ratios and market power measures are all positively correlated with industry wage differences individually though the data are not adequate to determine their independent contributions in multiple regression. On the basis of all the evidence we conclude that standard labor market clearing models can not easily explain all the facts. Several alternative models are discussed including efficiency wage and collective action threat mode1 s. These are found to be more consistent with the facts though some troubling problems remain.

Suggested Citation

Dickens, William T. and Katz, Lawrence F., Inter-Industry Wage Differences and Theories of Wage Determination (June 1987). NBER Working Paper No. w2271. Available at SSRN: https://ssrn.com/abstract=227501

William T. Dickens (Contact Author)

Northeastern University - Department of Economics ( email )

301 Lake Hall
Boston, MA 02115
United States

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Economic Studies
Washington, DC 20036-2188
United States

Lawrence F. Katz

Harvard University - Department of Economics ( email )

Littauer Center
Room 215
Cambridge, MA 02138
United States
617-495-5148 (Phone)
617-868-2742 (Fax)

HOME PAGE: http://www.economics.harvard.edu/faculty/katz/katz

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
46
Abstract Views
1,211
PlumX Metrics