Persistence of Interindustry Wage Differentials: A Reexamination Using Matched Worker-Firm Panel Data

We estimate interindustry wage differentials using new French longitudinal data that allow a tracking of workers and their firms over time. We find that, when measured on a cross-sectional basis, they primarily reflect the interindustry variations in unmeasured labor quality. However, interindustry wage differentials are only a minor component of interfirm wage differentials. The average differential in wages paid to the same workers by different firms is about 20%30%. In a given industry, wage policies are more favorable to workers in large, capital-intensive firms.
The author's central focus is that inter-industry wage differentials frequently reflect inter-industry changes in unmeasured labor quality. Also, although there is not a strong relationship between a company's average labor quality and its wage policy, employees are inclined to spend their careers in companies with similar wage policies.