Comparative Advantage, Learning, and Sectoral Wage Determination

54 Pages Posted: 11 Apr 2002 Last revised: 19 Apr 2002

See all articles by Robert S. Gibbons

Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics; National Bureau of Economic Research (NBER)

Lawrence F. Katz

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

Thomas Lemieux

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

Daniel Parent

McGill University - Department of Economics

Date Written: April 2002

Abstract

We develop a model in which a worker's skills determine the worker's current wage and sector. Both the market and the worker are initially uncertain about some of the worker's skills. Endogenous wage changes and sector mobility occur as labor-market participants learn about these unobserved skills. We show how the model can be estimated using non-linear instrumental-variables techniques. We then apply our methodology to study the wages and allocation of workers across occupations and across industries. For both occupations and industries, we find that high-wage sectors employ high-skill workers and offer high returns to workers' skills. Estimates of these sectoral wage differences that do not account for sector-specific returns are therefore misleading. We also suggest further applications of our theory and methodology.

Suggested Citation

Gibbons, Robert S. and Katz, Lawrence F. and Lemieux, Thomas and Parent, Daniel, Comparative Advantage, Learning, and Sectoral Wage Determination (April 2002). NBER Working Paper No. w8889. Available at SSRN: https://ssrn.com/abstract=307126

Robert S. Gibbons (Contact Author)

Massachusetts Institute of Technology - Sloan School and Department of Economics ( email )

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Lawrence F. Katz

Harvard University - Department of Economics ( email )

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Thomas Lemieux

University of British Columbia (UBC) - Department of Economics ( email )

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Daniel Parent

McGill University - Department of Economics ( email )

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Canada
514-398-4846 (Phone)
514-398-4938 (Fax)

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