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

Andrew B. Bernard, Stephen J. Redding, Peter K. Schott

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)135-163
Number of pages29
JournalAmerican Economic Journal: Microeconomics
Volume5
Issue number2
DOIs
StatePublished - May 2013

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance

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