Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/214838 
Year of Publication: 
2020
Series/Report no.: 
GLO Discussion Paper No. 491
Publisher: 
Global Labor Organization (GLO), Essen
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.
Subjects: 
hedonic models, inter-industry wage di§erentials, labor quality, wage determination
JEL: 
J31, J24, C51, M51
Document Type: 
Working Paper

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