Industry Wage Differentials: A Firm-Based Approach
Industry Wage Differentials: A Firm-Based Approach
Authors: David Card, Jesse Rothstein, Moises Yi
Citation: Card, David and Rothstein, Jesse and Yi, Moises (2024). Industry Wage Differentials: A Firm-Based Approach. Journal of Labor Economics, 42(), S11--S59.
Abstract: We revisit the estimation of industry wage differentials using linked employer-employee data. Cross-sectional industry differences overstate pay premiums due to unmeasured heterogeneity. Estimates based on models with person and industry effects understate true premiums: workers who switch to a higher-premium industry typically move from higher-paying firms in their origin industry to lower-paying firms in their destination (and vice versa). The corrected standard deviation of log wage effects is 0.122 across narrowly defined industries and is similar at higher levels of aggregation. Higher-skilled workers sort to higher-pay industries. Premiums and worker sorting are more variable in cities with higher-wage firms and higher-skilled workers.
Seminar Notes
Venue
SOLE 2023
Objective
Does the law of one price (wage) hold in labor markets? [No]
Importance
Sources of variation - compensating differentials, efficiency wages, search, monopsony, unions... Need to understand still if there is structure in the wage differentials.
Bring together AKM focus on firms to industry and geographic wage differentials
Background
Kruger & Summers Movers design →AKM firm movers design
Kruger and Summer movers are not representative, can't identify effect. Firms that they move between are more similar than average firm
Data & Key Variables
LEHD 2010-2018 Excluding low-earning quarters (< minimum wage), multiple jobholders, & first and last quarters
Methodology
The industry premium = the average firm effect across all firms in industry
Firm premium=industry premium+firms relative pay policy (hierarchy term)
Industry movers estimates are attenuated, so need AKM Estimate
AKM by CZ, then average across CZs to national industry level
Results
Estimates with corrections for firm heterogeneity show substantial worker sorting.
There is stability across education groups
55% of wage differences are person effects, 45% industry premia
If people move from lower premia industry to higher premia industry, tend to move to low paying firm in that higher paying industry (hierarchy effect)
Key Table/Figure
