Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials

20 Pages Posted: 14 Aug 2007 Last revised: 15 Apr 2022

See all articles by McKinley L. Blackburn

McKinley L. Blackburn

University of South Carolina - Darla Moore School of Business

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: October 1991

Abstract

Interindustry wage differentials in wage regressions estimated for individuals have been interpreted as evidence consistent with efficiency wage models. A principal competing explanation is that these differentials are generated by differences across workers in unobserved ability. This paper tests the unobserved ability hypothesis .by incorporating test scores into standard wage regressions as error-ridden indicators of unobserved ability. The results indicate that differences in unobserved ability explain relatively little of interindustry or interoccupation wage differentials.

Suggested Citation

Blackburn, McKinley L. and Neumark, David, Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials (October 1991). NBER Working Paper No. w3857, Available at SSRN: https://ssrn.com/abstract=473986

McKinley L. Blackburn (Contact Author)

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