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Inter-Industry Wage Inequality: Persistent differences and turbulent equalization

Patrick Mokre () and Miriam Rehm
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Patrick Mokre: Department of Economics, New School for Social Research

No 1818, Working Papers from New School for Social Research, Department of Economics

Abstract: Persistent inter-industry wage differentials are an enduring puzzle for neoclassical economics. This paper applies the classical theory of ‘real competition’ to inter-industry wage differentials. Theoretically, we argue that competitive wage determination can be decomposed into equalizing, dispersing and turbulently equalizing factors. Empirically, we show graphically and econometrically for 31 U.S. industries in 1987-2016 that wage differentials, like regulating profit rates, are governed by turbulent equalization. Furthermore, we apply a fixed effects OLS as well as a hierarchical Bayesian inference model and find that the link between regulating profit rates and wage differentials is positive, significant and robust.

Keywords: Wage inequality; industry wages; inter-industry wage differentials; incremental wages; real competition; convergence; gravitation; panel data; Bayesian econometrics (search for similar items in EconPapers)
JEL-codes: B12 B51 B52 C11 D24 J31 J51 J52 J62 L20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hme and nep-lab
Date: 2018-12
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http://www.economicpolicyresearch.org/econ/2018/NSSR_WP_182018.pdf First version, 2018 (application/pdf)

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