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Do Wage Differences Among Employers Last?

Recent interest in efficiency wage and insider/outsider models of wage determination has drawn attention to employer-based wage differences. Alternatively, these differences may simply reflect temporary, random errors by wage-setters. This paper provides strong evidence against the possibility that employer wage variations are temporary or random, along with additional verification of the existence of substantial employer wage differences within and between industries.

The variance of wages is analyzed in a unique data set: wages paid to individual workers in selected blue- and white-collar occupations frame a six-year panel of employers within a single standard metropolitan statistical area. The most conservative estimate of establishment wage differentials in this sample (controlling for very detailed job classification) yields a standard deviation of approximately 12 percent within industry, or 18 percent, including interindustry differentials. Wage differences among employers are shown to be virtually stationary over time and related to establishment size, but not consistently to changes in establishment employment.

Suggested citation: Groshen, Erica, 1989. “Do Wage Differences Among Employers Last?,” Federal Reserve Bank of Cleveland, Working Paper no. 89-06.

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