Explaining Wage Differentials Research Articles

Explaining wage differentials by field of study among higher education graduates: Evidence from a large-scale survey of adult skills

Why do some fields of study in higher education yield higher wage returns in the labor market than others? Human capital perspectives suggest that differences in skills are a major source of between-fields wage differentials. We assess this explanation using data from the Programme for the International Assessment of Adult Competencies (PIAAC). Our pooled analysis of 17,590 graduates from 29 countries indicates that differences in general cognitive (literacy and numeracy) skills matter relatively little, although numeracy skills do play a meaningful role in accounting for the high wages of STEM (science, technology, engineering, and mathematics) graduates. Specific skills, proxied by skill use on the job, explain a substantial portion of between-field wage differentials. Remarkably, we find that the sex composition of the field of study remains important after taking skills into account, particularly for explaining the wage advantage of STEM graduates. Comparative analyses grouping the 29 countries into four institutional clusters—Social-democratic, Conservative, Liberal, and Post-communist—show that these general patterns are broadly similar across different institutional contexts.

Wage Differentials And Educational Attainment In Germany. How Do Job Profiles Affect Earnings?

This paper presents the results of an empirical analysis on the issue of wage differentials occurring within education levels. The main purpose of the research is to investigate the extent to which job profiles, classified as routine and non-routine tasks can explain wage differentials within educational levels in Germany. Systematization of the literary sources and approaches for solving the problem of wage differentials indicates that in line with technological advancement witnessed over the past decades, earnings are largely determined by the nature of tasks carried out within the workplace. The relevance of this scientific problem decision is that educational systems have to keep up with advancing digitization and the rapidly changing labour market requirements. Investigation of the impact job profiles have on earnings, in the paper is carried out in the following logical sequence: firstly, a brief overview on previous research in the field is given, followed by an outline of the dataset analysed, proposed hypotheses, applied methodology and results concluding with a discussion. Methodological tools of the research methods were descriptive statistics along with OLS regression techniques. Based on German cross-sectional employee survey data from 2018 two hypotheses are tested by classifying 23 selected work activities into routine and non-routine tasks linked to the highest education level attained. In accordance with the German education system four educational levels are specified: no occupational degree, in-company or school-based vocational training, advanced vocational training degree and university degree. The results indicate that non-routine activities are on average remunerated at a higher rate compared to routine activities and non-routine analytical work is paid at a higher rate than non-routine craftmanship. Additionally, higher wages for computer assisted work activities is found. The OLS regression model results confirm both hypotheses implying increasing returns to educational attainments resulting in larger hourly pay and higher pay for those performing non-routine tasks. Pursuant to the traditional Mincer human capital approach on returns to schooling the research empirically confirms higher wages for employees completing advanced vocational training and those holding a university degree. The results of the research can be useful for policymakers in the education sector, fostering and improving analytical, data literacy and organizational skills.

Occupations, organizations, and the structure of wage inequality in the Netherlands

Recent studies have identified both occupations and organizations as important structures underpinning wage inequality in the labor market. In this article we investigate how the two structures might work together in explaining inequality. More specifically, we study how organizations affect between- and within-occupation inequality. Using a combination of Dutch linked employer-employee register data and the Dutch labor force survey, we find that organizations are more important in explaining wage differentials between occupations than wage inequality between workers with the same occupation. While organizations are far away from solely driving heterogeneity in pay among workers in the same occupation, we find that the sorting of high-paying occupations in high-paying firms (and vice versa) is an important mechanism by which both structures affect inequality. Our findings emphasize the importance of moving away from an isolated study of occupations or organizations towards an analytical integration of both structures for understanding wage inequality.

Wage Differentials Among Workers: An Empirical Analysis of the Manufacturing and Service Sectors

The paper examines the existence of wage differentials and attempts to enquire into the factors determining such differentials in the manufacturing and service sectors of Haryana state. It highlights the relative importance of worker-specific factors and firm-specific factors in explaining wage differentials in the labour market using a semi-logarithmic regression model. Worker-specific factors such as education, work experience, gender and marital status explain around half of the variation in the wage level of workers, whereas firm-specific factors such as nature, size, type and location of the enterprise are able to explain only a small proportion of variation in the wage level, ranging from 17% in the manufacturing sector to 12% in the service sector. This study pinpoints the relative importance of worker-specific factors over firm-specific factors in determining the wage level of workers. Empirical evidence highlights that a significant proportion of the unexplained part in the variation of wages can be attributed to the employer- or firm-specific factors/variables. Thus, this study highlights the importance of human capital in raising the income level of workers and brings out the fact that the quality of human capital is not only important to narrow wage differentials but also helpful in raising the wage level of workers, which is a proxy of standard of living and is the ultimate objective of development.

Inter‐country wage differences in the European Union

AbstractThis article investigates the determinants of wage gaps between European Union countries along the wage distribution, applying the methodology proposed by Firpo, Fortin and Lemieux (2009) and Fortin, Lemieux and Firpo (2011). The authors conclude that both wage structure and composition effects contribute to explaining wage differentials, but that the wage structure effect is more important. This latter effect would appear to derive from differences between unknown factors, while the composition effect can largely be explained by differences in the following areas: education, proportion of workers with supervisory responsibilities, occupational structure, and, to a lesser extent, industrial structure.

The Sources of Wage Variation: A Three-Way High-Dimensional Fixed Effects Regression Model

This paper estimates a wage equation with three high-dimensional fixed effects, using a longitudinal matched employer-employee dataset covering virtually all Portuguese wage earners over a little more than two decades. The variation in log real hourly wages is decomposed into different components related to worker, firm, and job title characteristics (both observed and unobserved) and a residual component.It is found that worker permanent heterogeneity is the most important source of wage variation (36.0 percent) and that the unobserved component plays a more important role (21.0 percent) than the observed component (15.0 percent) in explaining wage differentials. Firm permanent effects are less important overall (28.7 percent) and are due in almost equal parts to the unobserved component and the observed component. Job title effects emerge as the least important dimension but they still explain close to 10 percent of wage variation. We found definitive evidence of positive assortative matching.

E-learning and Labour Market: Wage-premium Analysis

The link between ICT and the demand for high-skilled labour is due to the fact that the introduction of digital technologies alters the skill requirements of occupations in three main ways (Spitz, 2003): 1) ICT capital substitutes repetitive manual and repetitive cognitive activities, 2) ICT capital is complementary to analytic and interactive activities, and 3) ICT capital increases the requirement for computing skills. Within this framework, we have analysed the determinants of labour productivity of individuals that have taken higher education programmes online to test how occupational skill requirements and the degree of ICT adoption by the industry matches skills of online students. In order to do this, we have assumed an implicit relationship between education and ability (Griliches and Mason, 1972), recognizing that online students may acquire specific skills, such as computing skills and abilities related to ICT use. For the empirical analysis we have used a database of degree students from the UOC (Universitat Oberta de Catalunya). The results from our model based on Mincerian equations show three important facts: 1) schooling is not a significant variable to explain wage differentials; 2) experience, understood as previous productivity and production losses avoided, is the most important variable explaining improvement of wages; and 3) ICT skills have a positive and significant effect on wage levels.

A Spatial Analysis of Wage Differentials for the Spanish Provinces

This paper analyzes, for the period 1995-2001, wage differentials and the economic factors behind them across the Spanish provinces using several complementary techniques, mainly spatial econometrics. The results we obtain show that: a) These differentials are not very large and, although declining, they will persist in the future; b) The ranking among the Spanish provinces is very stable over time; c) In explaining wage differentials geographic location matters, since each province tends to experience similar wages to its neighbors; d) The main economic factor behind these differences is the discrepancy in the productivity of labor; and e) There is a negligible link between unemployment rates and wage levels.

Wage Differentials and Market Imperfections: Some Cross Section Results in Canadian Manufacturing Industries

The purpose of this paper is to analyse the extent to which factor and product market imperfections are responsible for wage differentials. The conclusion is that without some form of factor market imperfection, the existence of imperfection in the product market cannot explain wage differentials.

The Race Is to the Swift: Socioeconomic Origins, Adult Education, and Wage Attainment

The “winners” in today’s winner‐take‐all labor markets are differentiated by advanced levels of educational attainment, especially higher degrees. This article applies a sociological model of cumulative dis/advantage to the baby‐boom cohort to examine whether life course timing differences in educational attainment help explain wage differentials by midlife. It finds that advantaged social origins lead to early postsecondary completion of degrees, which, in turn, yield higher wages. A pathway of cumulative disadvantage is also evident, where those least advantaged exit schooling early in life, do not return as adults, and earn low wages. In a middle path, advantaged social origins promote adult school attainment primarily for those without degrees but generally without the wage boosts associated with attainment earlier in life.

What happens when agent T gets a computer?: The labor market impact of cost efficient computer adoption

This paper offers a model of how computer technology has changed the labor market, demonstrating that wage differentials between computer users and non-users are consistent with computers first being introduced in high-wage jobs following cost efficiency. Furthermore, skill upgrading occurs following a reemphasis on non-routine tasks after adoption. The model also reveals that neither differences in computer skills nor complementary skills are needed to explain wage differentials between users and non-users, skill upgrading, and the changing organization and intensity of work. Finally, the predicted effects on the wage structure are consistent with empirical evidence.

Working on the Train? The Role of Technical Progress and Trade in Explaining Wage Differentials in Italian Firms

This paper presents firm-level evidence on the dynamics of the relative demand for non-manufacturing workers in Italian manufacturing during the 1990s. The analysis provides a number of interesting results. First, the rise within firms in the share of non-manual workers in both employment and hours worked (within-firm skill upgrading) is the main determinant of the increase in the relative demand for skilled workers. By contrast, demand changes associated to trade have mitigated such a rise by shifting employment away from skill-intensive firms. Second, while the relative number of hours worked by skilled workers within firms has risen, the hourly wage premium has fallen. Third, within-firm skill upgrading is strongly and significantly related to investment in computers and R&D. Fourth, we find that technical progress has raised the relative productivity of skilled workers (the skill-bias of technical progress is positive). Finally we show that the standard approach that measures annual, rather than hourly relative wages, produces a downward bias in the estimate of the skill-bias of technical progress.

Wage Differentials and International Trade in Italy Using Individual Micro Data 1991-1996

Our results show that international integration, both in terms of trade in goods and in terms of international labour mobility, plays a role in determining the wage differential between skilled (white collar) and unskilled (blue collar) workers, but the impact is in opposite directions. While, on the one hand, increasing trade in goods reduces wage differentials (through a positive impact on the wages of the unskilled workers), on the other hand immigration increases wage differentials, affecting the wage of the unskilled. In addition, in line with the research in labour economics, our findings show that the individual characteristics of workers matter in explaining wage differentials: the growth of women participation in the labour market reduces the wage gap, while the ageing of the employees increases it. In this paper we use individual micro data on workers combined with industry and regional data to study the dynamics of the wage differentials between skilled and unskilled workers in Italy in the period 1991-1996. Being different to previous empirical studies, our data allow us to explore in a unique framework the role of many of the factors indicated in the literature as possible causes of the widening of the wage gap between skilled and unskilled workers: changes in the individual characteristics of workers, changes in the institutions of the labour market, increasing international integration and skill-biased technological progress.

Temporary Employment and Segmentation in the Spanish Labour Market: An Empirical Analysis through the Study of Wage Differentials

The focus of this piece of work is the study of wage differentials between two broad types of workers, classified according to the nature of the employment contract they hold: either temporary or permanent. We intend to find out whether wage differentials between these two groups of workers are related to the distribution of employment contracts between different kinds of jobs or they register different returns for the same features. Although temporary and permanent workers are supposed to be equally paid for the same tasks, labour laws defending the former against discrimination. The data-sets used here to explore wage differentials are the European Community Household Panel (hereafter ECHP), and the Structure of Earnings Survey (SES). They are not strictly comparable then, but complementary. Wage differentials obtained with each data-set are decomposed using the well known Oaxaca-Blinder method, and the relevance of the different elements of such decomposition constitutes the main conclusive results. Our first intuition is that temporary and permanent contracts are used to cover different kinds of jobs, and this will be the main factor that will explain wage differentials between temporary and permanent workers. Besides, since temporary work does not affect people homogeneously through their working lives (being a common feature during the first years of the working life), differences in wage differentials should also be found among young and adult workers. Summarising, the aim is to study whether temporary status implies lower wages regardless of personal and job-related characteristics or whether temporary contracts are used in Spain to fill a particular segment of the labour demand and that is the main cause of wage differentials. These aspects will be separately studied for young and adult workers and the analysis is done twice, using two complementary data-sets. The main empirical findings show that permanent workers are better paid than temporary ones regardless of the age group, the main reasons for this being both the differences in the composition of employment and the distribution of job and personal characteristics between both kinds of workers. Besides, there are features that influence the probability of being hired under a (temporary) permanent contract and push wages (down) up. Wage differentials between temporary and permanent workers are explained by the differences in the characteristics of jobs and workers. Indeed, should two workers be exactly the same but have different types of contracts, temporary workers would register higher earnings than permanent ones. This result differs from previous evidence on the topic, but on the one hand it is achieved through a slightly different econometric specification (since we control for the endogeneity of the type of contract) and on the other hand it is coherent using two different data-sets. Results would agree with the initial intuition: there is a demand-based segmentation in the Spanish labour market.

Working on the Train? The Role of Technical Progress and Trade in Explaining Wage Differentials in Italian Firms

Working on the Train? The Role of Technical Progress and Trade in Explaining Wage Differentials in Italian Firms

What Happens When Agent T Gets a Computer? The Labor Market Impact of Cost Efficient Computer Adoption

This paper offers a model to explain how computer technology has changed the labor market. It demonstrates that wage differentials between computer users and non-users are consistent with the fact that computers are first introduced in high-wage jobs because of cost efficiency. Furthermore, skill upgrading occurs because of a reemphasis on non-routine tasks after computer adoption. The model also reveals that neither differences in computer skills nor complementary skills are needed to explain wage differentials between computer users and non-users, skill upgrading, and the changing organization and intensity of work. Finally, the predicted effects on the wage structure following the diffusion of computers are consistent with the empirical evidence.

The Returns to On-the-Job Training: Are They the Same for Blacks and Whites?

The trend in earnings differentials among demographic groups in general, and the status of black workers relative to white workers specifically, is a timely and ongoing topic of research. Nearly two decades of evidence suggests that while wage gains associated with increases in human capital acquisition by blacks were steady and sustained from post-World War II through the rapid progress of the 1960s, and even throughout most of the 1970s, the progress of those years slowed or ceased altogether in the 1980s.' Various explanations have been advanced in an attempt to explain the white/black wage gap and how it has changed over time. Some have focused on the important roles of education, literacy, and migration and have shown that the convergence in the earnings of blacks and whites can be largely attributed to the convergence in these human capital variables between the two groups.2 Other studies have suggested that the important factor in explaining changes in the white/ black wage gap has been anti-discrimination legislation such as Title VII of the Civil Rights Act of 1964 [17; 2; 5]. Recently, some have suggested that other factors, such as family background [10], educational achievement and quality [18; 20], and occupational shifts [3] are playing an increasingly important role in explaining white/black earnings differentials. In this paper, we contribute to the work previously done by focussing on the role that on-thejob training plays in explaining wage differentials among demographic groups and by investigating how shifts in the acquisition of training by different groups over time have impacted those dif

COMPENSATING WAGE DIFFERENTIALS: SOME EVIDENCE FOR BRITAIN

IN this paper we consider the impact of non-pecuniary job attributes on the distribution of male earnings and test the hypothesis that workers who undertake unfavourable or unattractive jobs will be compensated with higher earnings. Despite the fact that the theory of compensating wage differentials was first formally stated more than 200 years ago by Adam Smith, it is only recently that attempts have been made to subject it to empirical verification. Indeed, for Great Britain only the study by Marin and Psacharopoulos (1982) has attempted to use non-pecuniary job attributes (in their case the risk of death or injury) to explain wage differentials. The structure of the paper is as follows. In the next section we outline the methodology and data used in the study. The results of our analysis are then

Occupational segregation and the gender wage gap

The role of occupational segregation in the determination of gender wage differentials is assessed. It is found (1) that occupational segregation plays less of a role in explaining wage differentials than do traditional human capital variables; (2) that earnings profiles generated with data that include a percent female (PF) measure of occupational segregation are not ideal for testing human capital predictions yet nonetheless yield parameters consistent with neoclassical theory; and (3) that lifetime work considerations, such as the degree of one's labor force intermittency, are important in determining both one's occupation and wage. The implications are that government antidiscrimination policies based on outcome measures are in general inefficient. Instead, the government should concentrate on creating incentives for women to participate in the labor market on an equal basis as males.

Wage differentials among workers in input-output models

A human capital approach is assumed to explain wage differentials among workers in an input-output framework, where skilled workers are produced by means of goods and labor of different kinds. The first part discusses the solution of the input-output system; wage differentials are analyzed in terms of the rate of profit. In the second part, on the basis of an education matrix compiled ad hoc, hypothetical wage differentials are calculated according to education costs and the changes of skill prices at various levels of nonwage incomes derived.