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Economic Commentary

How Are Wages Determined?

Much of the variation in wages among employees cannot be explained by the usual variables of individual worker characteristics, demographics, and industry classification. Based on evidence from three labor markets in the Fourth Federal Reserve District, the author finds that employer differentials account for a large share of the variation in wages, with important implications for economics and management.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit for updates.

Suggested Citation

Groshen, Erica. 1990. “How Are Wages Determined?” Federal Reserve Bank of Cleveland, Economic Commentary 2/15/1990.