Industry Wage Differentials: A Firm-Based Approach

David Card, Jesse Rothstein and Moises Yi

No 31588, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We revisit the estimation of industry wage differentials using linked employer-employee data from the U.S. LEHD program. Building on recent advances in the measurement of employer wage premiums, we define the industry wage effect as the employment-weighted average workplace premium in that industry. We show that cross-sectional estimates of industry differentials overstate the pay premiums due to unmeasured worker heterogeneity. Conversely, estimates based on industry movers understate the true premiums, due to unmeasured heterogeneity in pay premiums within industries. Industry movers who switch to higher-premium industries tend to leave firms in the origin sector that pay above-average premiums and move to firms in the destination sector with below-average premiums (and vice versa), attenuating the measured industry effects. Our preferred estimates reveal substantial heterogeneity in narrowly-defined industry premiums, with a standard deviation of 12%. On average, workers in higher-paying industries have higher observed and unobserved skills, widening between-industry wage inequality. There are also small but systematic differences in industry premiums across cities, with a wider distribution of pay premiums and more worker sorting in cities with more high-premium firms and high-skilled workers.

JEL-codes: J31 J62 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-bec, nep-eff, nep-hrm, nep-lma, nep-ltv and nep-tid
Note: IO LS
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Citations: View citations in EconPapers (5)

Published as David Card & Jesse Rothstein & Moises Yi, 2024. "Industry Wage Differentials: A Firm-Based Approach," Journal of Labor Economics, vol 42(S1), pages S11-S59.

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Journal Article: Industry Wage Differentials: A Firm-Based Approach (2024)
Working Paper: Industry Wage Differentials: A Firm-Based Approach (2023)
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