Econometrica: May 2012, Volume 80, Issue 3

Does Industrial Composition Matter for Wages? A Test of Search and Bargaining Theory

https://doi.org/10.3982/ECTA8659
p. 1063-1104

Paul Beaudry, David A. Green, Benjamin Sand

Does switching the composition of jobs between low‐paying and high‐paying industries have important effects on wages in other sectors? In this paper, we build on search and bargaining theory to clarify a key general equilibrium channel through which changes in industrial composition could have substantial effects on wages in all sectors. In this class of models, wage determination takes the form of a social interaction problem and we illustrate how the implied sectoral linkages can be empirically explored using U.S. Census data. We find that sector‐level wages interact as implied by the model and that the predicted general equilibrium effects are present and substantial. We interpret our results as highlighting the relevance of search and bargaining theory for understanding the determination of wages, and we argue that the results provide support for the view that industrial composition is important for understanding wage outcomes.

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Supplement to "Does Industrial Composition Matter for Wages? A Test of Search and Bargaining Theory"

This appendix outlines the details of the manuscript's data construction (section S.1) and the implementation of the selection correction procedure described in the main text (section S.2).  In addition, we examine the robustness of our results in a number of dimensions and provide some derivations of key equations in the main paper.

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Supplement to "Does Industrial Composition Matter for Wages? A Test of Search and Bargaining Theory"

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