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Understanding inter-industry wage structures in the euro area

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This article focuses on the euro area wage structure and its potential determinants from a sectoral viewpoint. Merging information from the Organization for Economic Co-operation and Development (OECD) Structural Analysis database with data from the EU Labour Force Survey, we construct a cross-country panel of 22 industries in eight euro area countries for 1991-2002. Data inspection confirms the existence of a fairly stable inter-industry wage structure that is similar across countries. We then apply panel data techniques to identify factors explaining inter-industry wage differentials in the euro area. Both workforce characteristics (e.g. human capital variables) and firm-related characteristics (e.g. capital intensity, productivity) contribute significantly. However, considerable wage heterogeneity across sectors remains. Idiosyncratic sector and country specifics, reflecting different socio-cultural and institutional backgrounds, appear to bear a major role. While our empirical analysis only uses direct evidence from workforce and firm-related characteristics, we also relate the remaining heterogeneity to institutional characteristics, based on related literature.

Document Type: Research Article


Affiliations: 1: European Central Bank, Frankfurt-am-Main, Germany 2: KfW Bankengruppe, Frankfurt-am-Main and Institut zur Zukunft der Arbeit (IZA), Bonn, Germany

Publication date: April 1, 2011

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