Are Individual Characteristics All that Matters in Earnings Determination? Evidence from the US and Germany
University of Aberdeen, Discussion Paper in Economics No. 15-14
35 Pages Posted: 12 Mar 2016 Last revised: 25 Mar 2016
Date Written: December 17, 2015
Industry wage differentials may result either from the structure of the industry (demand type) or human capital (supply type) characteristics of the employed labour force. This study uses two major data sets from Germany and the US that allow the investigation of the effects of these demand and supply type factors on average earnings across industries. The main contribution of the paper shows that aggregate demand relevant to the particular industry has a strong positive effect on the industry's average earnings in addition to the previously established results regarding the significance of the effects of worker and firm characteristics. Consequently, labour market policies, which address solely the characteristics of the workforce and their human capital without due consideration of the macroeconomic environment and the structure of the industry, should be expected to produce the disappointing results of an increasing share of low pay employment in the wage distribution.
Keywords: macroeconomic demand, industrial earnings, vacancies
JEL Classification: J31, J63, E24
Suggested Citation: Suggested Citation