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Testing for factor price equality with unobserved differences in factor quality or productivity

Bernard, Andrew B., Redding, Stephen J. and Schott, Peter K. (2013) Testing for factor price equality with unobserved differences in factor quality or productivity. American Economic Journal: Microeconomics, 5 (2). pp. 135-163. ISSN 1945-7669

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Identification Number: 10.1257/mic.5.2.135


We develop a method for identifying departures from relative factor price equality that is robust to unobserved variation in factor productivity. We implement this method using data on the relative wage bills of nonproduction and production workers across 170 local labor markets comprising the continental United States for 1972, 1992, and 2007. We find evidence of statistically significant differences in relative wages in all three years. These differences increase in magnitude over time and are related to industry structure in a manner that is consistent with neoclassical models of production

Item Type: Article
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Additional Information: © 2013 American Economic Association
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
J Political Science > JV Colonies and colonization. Emigration and immigration. International migration
JEL classification: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J61 - Geographic Labor Mobility; Immigrant Workers
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R23 - Regional Migration; Regional Labor Markets; Population
Date Deposited: 01 Sep 2014 15:31
Last Modified: 20 Oct 2021 00:23
Funders: National Science Foundation (grants SES-0550190 and SES-0241474)

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