Interindustry Wage Differences and Industry Characteristics

Abstract

This paper examines the extent of interindustry wage differences for nonunion workers and finds that even after controlling for a wide range of individual characteristics and geographic location a substantial amount of individual wage variation can be accounted for by industry differences.In the aggrergate industry effects explain at least 6.7% of inter-personal wage variation. At most they explain 30%.While the importance of industry differences is clear, the reasons for the differences are more difficult to establish. Independent of the problems of interpreting the correlates of industry differences, even the sign of the relation of many variables with wages is difficult to establish when other variables are included as controls. This conclusion is suggested by a literature review and confirmed by an analysis of a large number of alternative specifications of an industry wage equation What does emerge from the analysis is a pattern of correlations. There appears to be one major dimension (and perhaps other less important dimensions) along which industries differ. A principal components analysis of an industry characteristics data set is used to demonstrate this. High wage industries have lower quit rates, higher labor productivity, fewer women, more educated workers, longer work weeks, a higher ratio of nonwage to wage compensation, higher unionization rates, larger establishments and firms, higher concentration ratios and are more profitable. An analysis of a limited number of industry characteristics in 1939 yields a similar pattern.The implications of these results for alternative theories of wage determination are considered.

Trends in Tariff Reforms and Trends in the Structure of Wages

“…This implies that the wages of workers with the same skills should equalize across sectors and that wages should change in the same way in all firms, independently of their internal features and reflecting only overall external market conditions. These predictions are, however, in sharp contrast with the evidence on wage differentials, even for similar individuals, documented by Dickens and Katz (1986) and Krueger and Summers (1988), and more recently by Attanasio, Goldberg and Pavcnik (2004) within the trade literature. Further, Gibbons and Katz (1989) and Krueger and Summers (1988) suggest that these wage premiums cannot be fully explained by compensating differentials alone, thus acknowledging the role of other explanatory factors such as sector-specific human capital, unionization, profit sharing or bargaining between workers and firms.…”

Internal Labor Markets in Equilibrium

“…The WERS FQ offers three different measures of establishment level productivity: profits, value added, and the capital/labor ratio. Capital/labor ratio and prof-itability, in particular, have been shown to be positive correlates of the wage, at least at the industry level (Dickens and Katz, 1986). Unfortunately, the response rate to the FQ was much lower than other parts of the survey; less than half of the participating companies returned a FQ.…”

Unemployment, Vacancies and Local Labor Markets

“…Persistent wage dif ferentials across industries which are not explained by observable characteristics of workers (Dickens and Katz 1986;Krueger and Sum mers 1986) suggests that different industrial compositions could generate wage effects on unemployment of the types described above. Alternative ly, industries can have more direct effects on labor demand due to dif ferences in cyclical sensitivities (Browne 1978;Rones 1986) or to secular trends caused by changes in tastes, other factor costs, etc., which shift demand across industries.…”

“…The high wages of manufacturing jobs, after controlling for personal characteristics, are discussed in Dickens and Katz (1986) or Krueger and Summers (1986), among other places. Low quit rates for manufacturing are found in Parsons (1977).…”