Volume 28, Number 1 (Winter) 1993
Keane, Michael P. 1993. "Individual Heterogeneity and Interindustry Wage Differentials." Journal of Human Resources 28(1):134-161.
Estimates of interindustry wage differentials are obtained using a fixed-effects estimator on a long panel, the National Longitudinal Survey of Young Men (NLS). After controlling for observable worker characteristics, 84 percent of the residual variance of log wages across industries is explained by individual fixed-effects. Only 16 percent of the residual variance is "explained" by industry dummies. Since no controls for specific job characteristics are used, job characteristics that vary across industries could potentially explain this rather small residual across-industry log wage variance that is not attributable to individual effects. Clearly, then, these data do not force us to resort to non-competitive explanations of interindustry wage differentials, such as efficiency wage theory. Furthermore, efficiency wage theories predict that wages in efficiency wage paying )or primary) industries should be relatively rigid. Therefore, industry wage differentials should widen in recessions. However, no such tendency is found in the data.
The author is a professor of industrial relations and economics at the University of Minnesota, Minneapolis, Minnesota and a researcher at the federal Reserve Bank of Minneapolis. This paper is taken from the fourth chapter of his doctoral dissertation at Brown University. He would like to thank his dissertation committee of Robert Moffitt, Tony Lancaster, and David Runkle for their advice and comments. The comments of seminar participants at Yale University and the University of Minnesota, as well as two anonymous referees, are also appreciated. He thanks the Alfred P. Sloan Foundation and the Federal Reserve Bank of Minneapolis for their support of this research. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. The data used in this article can be obtained from the author at the following address: 537 Management and Economics Buildings, University of Minnesota, Minneapolis, MN 55455.
© 2002 by the Board of Regents of the University of Wisconsin System
US ISSN 0022-166X