Unobserved Worker Quality and Inter-Industry Wage Differentials*

This study quantitatively assesses two alternative explanations for inter-industry wage differentials: worker heterogeneity in the form of unobserved quality and firm heterogeneity in the form of a firm's willingness to pay (WTP) for workers' productive attributes. Building on hedonic models of differentiated product demand, 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.     

Offshoring Pollution while Offshoring Production?

Research summary: We examine the role of firm strategy in the global effort to combat pollution. We find that U.S. plants release less toxic emissions when their parent firm imports more from low‐wage countries (LWCs). Consistent with the Pollution Haven Hypothesis, goods imported by U.S. firms from LWCs are in more pollution‐intensive industries. U.S. plants shift production to less pollution‐intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. The negative impact of LWC imports on emissions is stronger for U.S. plants located in counties with greater institutional pressure for environmental performance, but weaker for more‐capable U.S. plants and firms. These results highlight the role of local institutions and firm capability in explaining firms' offshoring and environmental strategies. Managerial summary: Using confidential trade, production, and pollution data of more than 8,000 firms and 18,000 plants from the U.S. Census Bureau for years 1992–2009, we find that U.S. plants release less toxic emissions when their parent firm imports more from low‐wage countries (LWCs). In addition, goods imported by U.S. firms from LWCs are in more pollution‐intensive industries. U.S. plants shift production to less pollution‐intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. However, not all U.S. firms choose to “offshore pollution.” U.S. plants located in counties with greater institutional pressure for environmental performance offshore more, but more‐capable U.S. plants and firms offshore less. Copyright © 2017 John Wiley & Sons, Ltd.     

Strategic Jobs and Wage Structure in the Steel Industry: 1910–1930

The concept of strategic occupations is used to explain individualistic bargaining power during the nonunion era of the U.S. steel industry. It is hypothesized that integrative technical change homogenized the wage structure, but job categories associated with strategic work resisted this pattern. The results show that the degree of wage homogenization corresponded to the degree of technical diffusion in given steel industry departments. Moreover, strategic job categories did resist the pattern of wage homogenization.     

Meritocracy in America: Wages Within and Across Occupations

In The Bell Curve , Herrnstein and Murray argue that the U.S. economy is a meritocracy in which differences in wages (including differences across race and gender) are explained by differences in cognitive ability. In this article we test their claim for wages conditional on occupation using a simultaneous model of occupation choice and wage determination. Our results contradict Herrnstein and Murray's claim that the U.S. labor market operates only on meritocratic principles.     

U.S. Multinational Activity Abroad and U.S. Jobs: Substitutes or Complements?

Critics of globalization claim that firms are being driven by the prospects of cheaper labor and lower labor standards to shift employment abroad. Yet the evidence, beyond anecdotes, is slim. This paper reports stylized facts on the activities of U.S. multinationals at home and abroad for the years 1977 to 1999. We focus on firms in manufacturing and services, two sectors that have received extensive media attention for supposedly exporting jobs. Using firm‐level data collected by the Bureau of Economic Analysis (BEA) in Washington, D.C., we report correlations between U.S. multinational employment at home and abroad. Preliminary evidence based on the operations of these multinationals suggests that the sign of the correlation depends on the crucial distinction between affiliates in high‐income and low‐income countries. For affiliates in high‐income countries there is a positive correlation between jobs at home and abroad, suggesting that foreign employment of U.S. multinationals is complementary to domestic employment. For firms that operate in developing countries, employment has been cut in the United States, and affiliate employment has increased. To account for firm size, substitution across firms and entry and exit, we aggregate our data to the industry level. This exercise reveals that the observed “complementarity” between U.S. and foreign jobs has been driven largely by a contraction across all manufacturing sectors. It also reveals that foreign employment in developing countries has substituted for U.S. employment in several highly visible industries, including computers, electronics, and transportation. The fact that there were U.S. jobs lost to foreign affiliates in key sectors, despite broad complementarity in hiring and firing decisions between U.S. parents and their affiliates, helps explain why economists view the impact of globalization on U.S. jobs as benign despite negative news coverage for declining industries.     

Union Wage Gap in the U.S. Construction Sector: 1983–2007

Wage gap decomposition shows that declining union power was the principal force behind the shrinking union wage premium in the U.S. construction industry between the 1980s and the 2000s. This decline was largely offset by changes in returns to workforce attributes and workforce compositions. Without these moderating effects, the decline in the wage gap would have been twice as large (in log points). The patterns were similar in the basic and mechanical trades, but magnitudes of change were larger in the latter.     

New Evidence on Gender Differences in Promotion Rates: An Empirical Analysis of a Sample of New Hires

Using a large sample of establishments drawn from the Multi‐City Study of Urban Inequality employer survey, we studied gender differences in promotion rates and in the wage gains attached to promotions. Several unique features of our data distinguish our analysis from the previous literature on this topic. First, we have information on the wage increases attached to promotions, and relatively few studies on gender differences have considered promotions and wage increases together. Second, our data include job‐specific worker performance ratings, allowing us to control for performance and ability more precisely than through commonly used skill indicators such as educational attainment or tenure. Third, in addition to standard information on occupation and industry, we have data on a number of other firm characteristics, enabling us to control for these variables while still relying on a broad, representative sample, as opposed to a single firm or a similarly narrowly defined population. Our results indicate that women have lower probabilities of promotion and expected promotion than men do but that there is essentially no gender difference in wage growth with or without promotions.     

Equal Pay for Equal Task: Assessing Heterogeneous Returns to Tasks across Genders

We inspect the heterogeneous association between tasks and wages across genders using individual-level data on U.S. workers. Our findings suggest that women receive a higher wage premium when engaged in cognitive tasks and experience more contained wage losses when performing manual activities. However, a wage penalty characterizes women engaged in highly social intensive jobs. Further inspection reveals that this result is especially driven by the teamwork component of social activities.     

Is there a liability of foreignness in global banking? An empirical test of banks' X‐efficiency

When a company operates outside of its home country, it may suffer a ‘liability of foreignness.’ Does this a priori theoretical expectation hold in the global banking industry? Banks increasingly compete outside of their home countries, and operating environments often differ sharply across countries, both in terms of financial markets and credit risk. In this paper, we report the results of an empirical test of the liability of foreignness in the global banking industry, using Fitch–IBCA BankScope data for the period 1989–96. Our findings strongly support the liability of foreignness hypothesis. Further, the data show some evidence that the X‐efficiency of a foreign‐owned bank is strongly influenced by the competitiveness of its home country and the host country in which it operates. Lastly, we find that in some environments U.S.‐owned banks are more X‐efficient than other foreign‐owned banks in some environments, but less X‐efficient in others. Copyright © 2002 John Wiley & Sons, Ltd.     

Who Fared Better? The Fortunes of Performance Pay and Fixed Pay Workers through Recession

Using the Annual Survey of Hours and Earnings, we explore whether the fortunes of employees paid for performance differ from those of fixed pay workers during recession. Only in the bottom quintile of the wage distribution were performance pay employees more likely to experience greater falls in real wages than fixed pay employees. Accounting for fixed unobserved worker characteristics suggests that this was not due to the wage‐setting mechanism itself, but that other factors are likely to be at play. While across most of the earnings distribution there was little evidence of greater wage flexibility among performance pay employees, they did have longer job tenure than fixed pay employees over the recession.     

The Sexual Orientation Wage Gap for Racial Minorities

We explore the sexual orientation wage gap across four race and ethnic groups in the 2000 U.S. Census: Asian, black, Hispanic, and white. Using decomposition analysis, we explore if racial minority groups experience the same pattern of sexual orientation wage differences as their white counterparts, and how racial and sexual orientation wage differences interact over the distribution of wages. For men, we show a combined unexplained penalty greater than the sum of their individual unexplained race and sexual‐orientation differentials. Racial minority lesbians, however, earn higher wages than what the sum of their racial and sexual‐orientation analyses would suggest.     

Vacation Time and Unionism in the U.S. and Europe

American employees receive substantially less paid vacation than Europeans despite earning higher real wages and having greater personal wealth. Here we present past and current averages for individual countries, along with a brief history of the growth of paid vacations in the U.S. and Europe. Regression analyses of individual household data from the U.S. indicate that union membership substantially influences the length of vacation time for U.S. workers. This finding helps explain why the U.S. vacation time average is lower than the European average.     

工会组织对工资收入的影响：基于制度因素视角——来自英国的经验证据

经济规模、劳动者自身素质及制度等异质性因素,引致劳动力市场具有非完全竞争性的特征,在一定程度上解释了劳动者的工资差异现象。以英国1996和2001年数据为例,在考虑行业与劳动者素质异质性等控制变量情况下,从制度因素视角就工会组织对工人工资的影响进行考察。结果表明,工会成员身份对工人工资作用显著,能产生超过10%的溢价。因此,工会组织的社会生活中的地位与影响力,及其增强工人对雇主议价能力的作用应予重视。     

The Extent of Rent Sharing along the Wage Distribution

The relation between rent sharing and wages has generally been evaluated on average wages. This article uses a unique employer–employee panel database to investigate the extent of rent sharing along the wage distribution in Italy. We apply quantile regression techniques and control for national level bargaining, unobserved worker and firm heterogeneity and endogeneity. Our findings show that the extent of rent sharing decreases along the wage distribution, suggesting that unskilled workers benefit most from firms’ rents. By applying quantile regressions by occupational categories, we show that the decreasing pattern is mainly driven by blue collar workers, while estimates for white collars are higher and basically constant along the wage distribution. We also provide evidence that unions might represent one of the drivers of our findings.     

A New Voice or a Waste of Time? Wage Premiums from Using Computers for Communication in the UK Workplace

The paper uses the Workplace Employee Relations Survey data on workers to investigate the wage premium from using e‐mail in the workplace against other more traditional forms of communication. I try to discern whether the existence of a premium from using e‐mail is the product of the workplace encouraging worker productivity through voice, or represents unobserved worker skills in using new technology. Results indicate that any observed premium from using e‐mail is likely to arise from unobserved worker skills, and that any premium associated with voice in the workplace is likely to result from management choosing to reward such worker involvement.     

A Reexamination of Public-Sector Wage Differentials in the United States: Evidence from the NLSY with Geocode

While many researchers have sought to estimate federal-private wage differentials in the United States, most of them ignore the issues of unobserved heterogeneity and selectivity among sectors. This article seeks to fill the gap in previous literature by using a more appropriate data set and several compelling techniques. The main results suggest substantial bias in ordinary least squares (OLS) estimates of federal-private wage differentials due to individual heterogeneity and self-selection. The direction of bias under selectivity correction (upward for men and downward for women) is consistent with results from both test-score approach estimates and the fixed-effects estimates.     

The effect of national culture on the choice between licensing and direct foreign investment

This paper argues that national differences in levels of trust impact perceptions of transactions costs and thereby influence the desirability of internalization and the choice of foreign market entry mode. The paper tests this framework on industry level data from the United States Commerce Department's Benchmark Survey of operations of U.S. -based manufacturing multinational corporations in 1977 and 1982, and shows that cultural differences in trust do influence perceptions of transaction costs and the preference for direct foreign investment across countries.     

Dissecting Between-Plant and Within-Plant Wage Dispersion: Evidence from Germany

Using rich linked employer–employee data for (West) Germany between 1996 and 2014, we conduct a decomposition analysis based on recentered influence function (RIF) regressions to analyze the relative contributions of various plant and worker characteristics to the rise in German wage dispersion. Moreover, we separately investigate the sources of between-plant and within-plant wage dispersion. We find that industry effects and the collective bargaining regime contribute the most to rising wage inequality. In the case of collective bargaining, both the decline in collective bargaining coverage and the increase in wage dispersion among the group of covered plants have played important roles.     

Statistical Approaches to Forecasting Domestic Energy Consumption and Assessing Determinants: The Case of Nordic Countries

The residential sector accounts for large share of total annual energy use in the Nordic countries due to the extremely cold climates and high household heating demand. Most domestic energy consumption in the Nordic countries is for space heating and providing hot water. The purpose of our study was to forecast the annual energy consumption of the Nordic residential sectors by 2020 as a function of socio-economic and environmental factors, and to offer a framework for the predictors in each country.

Our research models the domestic energy use in Nordic countries based on social, economic and environmental factors. Applying the multiple linear regression (MLR), multivariate adaptive regression splines (MARS), and the artificial neural network (ANN) analysis methodologies, three models have been generated for each country in the Nordic region. Using these models, we forecasted the Nordic countries domestic energy use by 2020 and assessed the causal links between energy consumption and the investigated predictors. The results showed that the ANN models have a superior capability of forecasting the domestic energy use and specifying the importance of predictors compared to the regression models. The models revealed that changes in population, unemployment rate, work force, urban population, and the amount of CO₂ emissions from the residential sectors can cause significant variations in Nordic domestic sector energy use.     

Estimating the Wage Premium of Collective Wage Contracts: Evidence from Longitudinal Linked Employer–Employee Data

Using a large‐scale linked employer–employee dataset from western Germany, this paper presents new evidence on the wage premium of collective bargaining contracts. In contrast to previous studies, we seek to assess the extent to which differences in wages between workers in covered and uncovered firms arise from the nonrandom selection of workers and firms into collective bargaining coverage. By measuring the relative wage changes of workers employed in firms that change contract status, we obtain estimates that depart considerably from previous results relying on cross‐sectional data. Results from analyzing separate transitions show that leaving industry‐level contracts is associated with subsequent wage losses. However, the results from a trend‐adjusted difference‐in‐difference approach indicate that particularly the transitions to no coverage appear to be associated with negative shocks. Overall, our findings provide no evidence of a “true” wage effect of leaving wage bargaining, once we account for differences in pretransition wage growth.