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

36 Pages Posted: 22 Jan 2013

See all articles by Andrew B. Bernard

Andrew B. Bernard

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Stephen J. Redding

Princeton University

Peter K. Schott

Yale University - School of Management; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Date Written: September 1, 2012

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 non-production 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.

Keywords: Factor Price Equality, Regional Wages, Neoclassical Trade, Labor Market Areas

JEL Classification: F16, J30, R23, C14

Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K., Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity (September 1, 2012). US Census Bureau Center for Economic Studies Paper No. CES-WP- 12-32, Available at SSRN: https://ssrn.com/abstract=2205218 or http://dx.doi.org/10.2139/ssrn.2205218

Andrew B. Bernard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0302 (Phone)
603-646-9084 (Fax)

HOME PAGE: http://mba.tuck.dartmouth.edu/pages/faculty/Andrew.Bernard/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR) ( email )

London
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Stephen J. Redding

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

Peter K. Schott

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-436-4260 (Phone)
203-436-6974 (Fax)

HOME PAGE: http://www.som.yale.edu/faculty/pks4

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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