Unobserved Worker Quality and Inter-Industry Wage Differentials

Suqin Ge and João Macieira

No 491, GLO Discussion Paper Series from Global Labor Organization (GLO)

Abstract: This study quantitatively assesses two alternative explanations for inter-industry wage differentials: worker heterogeneity in the formof unobserved quality and firmheterogeneity in the form of a firm's willingness to pay (WTP) for workers' productive attributes. We develop an empirical hedonic model of labor demand and apply a two-stage nonparametric procedure to recover worker and firm heterogeneities. In the first stage we recover unmeasured worker quality by estimating market-specific hedonic wage functions nonparametrically. In the second stage we infer each firm's WTP parameters for worker attributes by using first-order conditions from the demand model. We apply our approach to quantify inter-industry wage differentials on the basis of individual data from the NLSY79 and find that worker quality accounts for approximately two thirds of the inter-industry wage differentials.

Keywords: hedonic models; inter-industry wage di§erentials; labor quality; wage determination (search for similar items in EconPapers)
JEL-codes: C51 J24 J31 M51 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-dcm and nep-lma
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Related works:
Journal Article: Unobserved Worker Quality and Inter‐Industry Wage Differentials (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:491

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