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Title: Spill-overs from good jobs: A new approach to a recurring debate

Citation Type: Miscellaneous

Publication Year: 2008

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Abstract: Does attracting or losing jobs in high paying sectors have important spill-over e ffects on wages in other sectors? The answer to this question is central to a proper assessment of many trade and industrial policies. In this paper, we exploit a search and matching model of the labor market to clarify how this question can be properly posed and how it can be empirically explored. In our empirical implementation, we use U.S. Census data over the years 1970 to 2000 to quantify the relationship between changes in industrial composition and changes in industry-specifi c city-level wages. Our findings are that sectoral level wages act as strategic complements in a manner consistent with bargaining theory, and that the spill-over (i.e., general equilibrium) eff ects associated with changes in the fraction of jobs in high paying sectors are very substantial and persistent. Our point estimates indicate that the total effect on average wages of a change in industrial composition that favors high paying sectors is about 3.5 times that obtained from a commonly used composition-adjustment approach which neglects general equilibrium effects. We interpret our results as highlighting the relevance of search and matching models for understanding wage determination in a decentralized economy, and we argue that our results provide considerable support to the populist view that changes in industrial composition is very important for understanding labor market outcomes.

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Authors: Sand, Benjamin; Beaudry, Paul; Green, David

Publisher: University of Western Ontario

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

Countries: United States