Theories Of Inter-industry Wage Differentials

Standard competitive theory suggests that equally productive workers receive compensation schemes that would provide an equal level of utility. The remuneration would depend solely on workers abilities and would not be influenced by the characteristics of an employer. Inability to find relevant empirical evidence to support this theory would facilitate appearance of alternative theories stating that true wage differentials exist across industries, even for identical workers. Such industry wage differentials arise in the models of efficiency wages compensating differences, rent sharing, and in many others. In this article we discuss four basic theories explaining large and persistent wage differentials.

As mentioned above, one explanation of persistent wage differences among observationally similar workers in competitive labor markets rests on differences in workers? productive abilities that are not captured in individual-level data sets. High-ability workers earn higher average wages; industries that employ proportionally more high-ability workers pay higher average wages to observationally equivalent workers. This theory is supported by the empirical findings of Katz (1987), Helwege (1989), and Murphy and Topel (1987, 1990). It is worth noting that this hypothesis does not deviate from standard competitive theory of wage determination, since the reason for higher wages is workers ability that we can not capture in the estimation.

Goux and Maurin?s (1999) findings also support the ?unmeasured abilities? hypothesis. They estimate inter-industry wage differentials using new French longitudinal data that allow them to track workers and their firms over time. The authors find that, when measured on a cross-sectional basis, they primarily reflect the inter-industry variations in unmeasured labor quality. However, through the matched employer-employee data they control for firm-level effects and find that inter-industry wage differentials are only a minor component of inter-firm wage differentials. These findings are much closer to those of Murphy and Topel (1987) than to those of Krueger and Summers (1988) that are discussed further in this chapter.

The second model explaining inter-industry differentials is efficiency wage theory. The theory holds on the assumption that some firms pay higher wage than the going wage for the workers of the type they attract. The rationale for doing so can be either these firms do not profit-maximize, or they find paying higher wages more profitable. The latter alternative is on what efficiency wage theory holds.

According to efficiency wages there are at least four reasons why employers pay wages above going wage levels. Firstly, it is believed that workers are paid in excess to avoid high turnover costs (Salop (1979), Stiglitz (1974) and (1985)). If turnover costs are responsive to wage rate increases, then there may be an incentive to pay higher remuneration. The second possibility is that increasing wages raise employee effort level (Shapiro and Stiglitz (1984)). Workers who are paid only their opportunity cost may have little incentive to perform well, since dismissal from the current job would not be costly. By larger wages employers may simply improve worker performance. The third reason states that workers loyalty to the firm increases with the extent to which the firm shares its profits with them. And lastly, the final reason is about selection: firms that pay high salaries attract a higher quality pool of applicants.

In this respect it is necessary to mention Krueger and Summers (1988), who present estimates of the effects of industry switches on wages through a first-differenced regression on matched May Current Population Survey (CPS) data. After attempting to correct for false industry transitions, Krueger and Summers (1988) estimate that the industry wage differentials from the first-differenced regression are significant, of the same sign, and close in magnitude to the cross-section regression estimates. In this way they reject the competitive wage determination hypothesis and conclude that their empirical finding casts “serious doubt on ‘unmeasured labor quality’ explanations for inter-industry wage differences”. In other words, (after controlling for other observables) workers moving from high- to low-wage industries experience a wage decrease, while those moving from low-to high-wage industries experience a wage increase. Moreover, the size of these wage changes is similar to the difference between the relevant industry wage differentials estimated in a cross-section.

The third model postulates that the finding of stable inter-industry wage differentials could be explained by pointing to compensating differentials. The compensating differentials argument is that agreeable and disagreeable job attributes vary systematically with one?s industry of employment, and therefore necessitate wage differentials to compensate employees for non-wage aspects of the industry. Attempts to find empirical evidence supporting this theory can be found in Brown (1980) and Smith (1979).

The final model of rent sharing is based on the numerous empirical findings stating that profitable firms pay higher wages even when controlling for human capital characteristics and firm fixed effects. In other words, the rent-seeking model predicts a positive correlation between profitability of the firm and the wage rate paid to the employees. Based on this model we would expect that industries with high profit margin would be paying higher wages compared to the industries with lower profit margins. Empirical evidence for this theory can be found in Plasman, Rycx and Tojerow (2006), who utilized the Belgian firm-worker matched data set.

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Return to India Jobs What’s Hot What’s Not

If you are a NRI and are browsing the internet, you will be surprised to find many positioning agencies and websites which have sprung up recently offering their services in locating NRIs with an ideal jobs which commensurate with their present status in the united states. Many Indians in USA are logging on to these websites and therefore are posting their resumes, hoping that they will land up having a lucrative job in any multinational company or business business house in India.

The Indian economy has begun to boom and several are waking up to this fact. India is making a slow but steady improvement in her growth and many NRIs want to take part in this growth and do not want to skip this opportunity.

It is not only sentimental reasons like being with aged parents along with other close relatives that are attracting Non-resident Indians to return looking for Indian jobs. Many sectors are currently in need of trained professionals and experienced skill personnel which are luring these people to return to Indian work. The demand does not rest with only jobs within the technology sector but in other sectors like delivery, construction, health care, biotechnology, newspaper industry, specialty advertising and aerospace. Most of the jobs in these sectors are available for highly qualified and experienced personnel and Indians employed in Indian companies in USA are finding these like a very attractive option.

Many of the websites catering to locating jobs for NRIs are enticing these people along with lucrative benefits and perks like all expenses compensated relocation, comfortable lifestyle, salaries on par with ALL OF US currency, company accommodation and much more. The hot jobs which are luring many Indians in US are the white-collar jobs and managerial positions in banking institutions and investment banking sectors. The hot jobs, that are being filled, are the middle and senior management levels within the different corporates and companies.

Many western and European business houses that are keen to setup their businesses in India are looking for expatriates who are prepared to take up responsible senior positions to manage their own business in India. With their expertise in work knowledge and contact with international trade practices, these Indians are an resource to these foreign companies.

With the merchant banking and investment banking sectors emerging as two from the hot spots that are offering lucrative Indian work [] opportunities to these NRIs, there are jobs in the technology field which are not so hot and attractive any more to the returning Indians. Most NRIs returning to India are looking for jobs in the managerial levels. It is these jobs that are very attractive with all their perks and pay structure. The Indian IT industry is already up to the brim with talented workforce from the local population, but it is the other sectors like banking and investment, construction and health care that are offering some of the hottest jobs to these Indians from USA. If you are working with an Indian company in the US and are currently looking for jobs in India, you know where to look..

Somerset Offers Superb Choice Of Town Country And Coastal New Homes

Housebuilders active in the Somerset new homes market currently have a superb range of brand new coastal, town and country properties available, scattered right across the county.


House hunters looking for a new home on the Somerset coast, Bloor Homes has created Weston Gateway on the fringes of the Victorian seaside resort of Weston-super-Mare, made up of two- to four-bedroom properties. Priced from 139,960 to 204,950, house buyers here will be able to enjoy the sandy beach at West Bay; stroll along the seafront promenade and Grand Pier; and enjoy the town’s shops, sports facilities and entertainment venues. There’s a good choice of schools, and for commuters the development is situated just off Junction 21 of the M5 – ideal for trips to Bristol, Taunton and Exeter.

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There are many developments dotted throughout Somerset that offer fantastic access to picturesque countryside, including new homes near Glastonbury, Frome and Yeovil. The small, quaint town of Glastonbury is surrounded by gorgeous countryside and rural attractions such as the famous Tor. At Taylor Wimpey’s Dunstan Park development in Glastonbury, new homes are priced from 144,995 to 249,995, and are nestled in a peaceful, leafy conservation area with its own wetland area and pond. The development is close to excellent nurseries, primary schools and secondary schools and also offers convenient road links.

Located at the eastern end of the gorgeous Mendip Hills, historic Frome’s pretty town centre hosts regular farmers’ markets and is full of independent shops, popular cafes, and delis selling local produce from the surrounding countryside. The two-, three- and four-bedroom character properties at Bloor Homes’ Trinity Park are already selling fast, priced from 117,950 to 199,950. With all of Frome’s excellent local amenities nearby, this development also has wonderful countryside on its doorstep, yet is only a short commute from Bristol, Wells, Bath and Glastonbury.

Alternatively, David Wilson Homes has a development called Wyndham Park on the edge of lovely countryside near the town of Yeovil, again offering a wide choice of property sizes and prices from two- to five-bedrooms and priced from 199,950 to 395,000.


Town centre developments in Somerset include Langford Mead from David Wilson Homes. This stunning development of contemporary two- to five-bedroom homes is situated in the lively county town of Taunton, well known for its independent boutiques and high street shops. Taunton is an attractive town with a huge appeal, and Langford Mead benefits from being close to the Park & Ride for easy trips into the centre. Priced from 199,950 to 419,950, there’s a good range of homes to suit different budgets.