Unobserved Worker Quality and Inter-Industry Wage Differentials

47 Pages Posted: 16 Feb 2014

See all articles by Suqin Ge

Suqin Ge

Virginia Tech - Department of Economics

Joao Macieira

Virginia Polytechnic Institute & State University - Department of Economics

Date Written: February 15, 2014

Abstract

This study quantitatively assesses two alternative explanations for inter-industry wage differentials: worker heterogeneity in the form of unobserved quality and firm heterogeneity in the form of the firm’s willingness to pay (WTP) for workers’ productive attributes. We develop an empirical model of labor demand and apply a two-stage nonparametric procedure to recover worker and firm heterogeneities. In the first stage we recover unmeasured worker quality by estimating a nonparametric hedonic wage function. In the second stage we infer each firm’s WTP parameters for worker attributes by using first-order conditions from the demand model. We apply our approach to quantify inter-industry wage differentials on the basis of individual data from NLSY79 and find that worker quality accounts for approximately two thirds of the inter-industry wage differentials.

Keywords: hedonic models, inter-industry wage differentials, labor quality, wage determination

JEL Classification: J31, J24, C51, M51

Suggested Citation

Ge, Suqin and Macieira, Joao, Unobserved Worker Quality and Inter-Industry Wage Differentials (February 15, 2014). Available at SSRN: https://ssrn.com/abstract=2396656 or http://dx.doi.org/10.2139/ssrn.2396656

Suqin Ge (Contact Author)

Virginia Tech - Department of Economics ( email )

Department of Economics
Virginia Tech
Blacksburg, VA 24061
United States

Joao Macieira

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States
15402317353 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
37
Abstract Views
329
PlumX Metrics