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American Economic Journal: Microeconomics: Vol. 5 No. 2 (May 2013)

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Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity

Article Citation

Bernard, Andrew B., Stephen J. Redding, and Peter K. Schott. 2013. "Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity." American Economic Journal: Microeconomics, 5(2): 135-63.

DOI: 10.1257/mic.5.2.135

Abstract

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. (JEL J31, J61, R23)

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Authors

Bernard, Andrew B. (Dartmouth College)
Redding, Stephen J. (Princeton U)
Schott, Peter K. (Yale U)

JEL Classifications

J31: Wage Level and Structure; Wage Differentials
J61: Geographic Labor Mobility; Immigrant Workers
R23: Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics

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