Vizer, David (2011): Behind the North-South divide: A decomposition analysis.
Download (577Kb) | Preview
The paper applies modified Oaxaca-type analyses on the eighteen available waves of the British Household Panel Survey to decompose the wage gap among full time employees from either side of the North-South divide and identify its components that can be attributed to measurable worker- and labour market characteristics, and the part due to differences in the returns to these endowments. Further, by applying Juhn, Murphy and Pierce’s (1991) methodology, it is analysed, how changes in these underlying factors could explain the one quarter decline in the wage gap over the 1991 – 2009 period. The paper confirms the existence of a differential treatment effect by showing that only one fifth of the wage gap can be explained by observable differences. The magnitude of the unexplainable coefficient effect is so large, that the remarkable improvements in Northern occupational structure and human capital levels over the period could only translate into an actual decline in the wage gap, because it coincided with a period of increasing inequality among Northern occupational wage premia, which – as a by-product – increased the average Northern wage and this way counterbalanced the effects of the increasing Southern returns to experience, that alone could have increased the initial pay gap by half.
|Item Type:||MPRA Paper|
|Original Title:||Behind the North-South divide: A decomposition analysis|
|Keywords:||England's North-South divide, regional wage gap, Oaxaca decomposition, Juhn, Murphy and Pierce decomposition, Yun's method|
|Subjects:||J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
|Depositing User:||David Vizer|
|Date Deposited:||24. Jan 2011 21:52|
|Last Modified:||21. Feb 2013 02:27|
Armstrong, H. and Taylor, J. (1987) Regional Policy: The Way Forward, Employment Institute, London
Autor, D.H, Katz, L.F. and Krueger, A.B. (1998) "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November.
Baker, A. R. H. and Billinge, M. eds. (2004) Geographies of England: The North-South Divide, Imagined and Material, Cambridge: Cambridge U.P.
Becker S.G. (1971) The Economics of Discrimination. Chicago, University of Chicago Press.
Bergmann, B. R. (1971) The Effect on White Incomes of Discrimination in Employment. The Journal of Political Economy Vol. 79, No. 2 (Mar. - Apr., 1971), pp. 294-313
Blackaby, D. and Manning, D. (1990) The north-south divide: questions of existence and stability?, The Economic Journal 100, 510-527.
Blackaby, D. and Murphy, P. (1995) Earnings, unemployment and Britain’s north-south divide: real or imaginary, Oxford Bulletin of Economics and Statistics 57, 4, 487-512.
Blanden, J., Gregg, P. and Machin, S. (2003) Changes in Educational Inequality Institute for Fiscal Studies (2004) vol. 25, no. 2, pp. 107–
Blau, F. D. and Kahn, L. M., (1997) The Impact of Wage Structure on Trends in U.S. Gender Wage Differentials1975-1987, NBER Working Papers 4748, National Bureau of Economic Research, Inc.
Blinder, A. (1971) Estimating a Micro Wage Equation: Pitfalls and Some Provisional Estimates. Princeton University Econometric Research Program, Research Memorandum No. 131, November 1971.
Blinder, A. (1973) Wage Discrimination: Reduced Form and Structural Variables. Journal of Human Resources 8(4):436-65.
Bloch, F. and Kushin, M. (1978) Wage determination in the union and non-union sector, Industrial and Labor Relations Review, 31, pp. 183-192.
Borjas, G. J. and Ramey, V. A. (1995) “Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1075-1110, November.
Brown, C., Medoff, J., (1989) The employer size–wage effect. Journal of Political Economy, 97 /5., 1027–1059.
Buchinsky, M. (1994) Changes in the U.S. wage structure 1963–1987: an application of quantile regression. Econometrica 62: 405–458.
Cameron, S. 1985. Inter-industry Variations in the Wage-Rates of Adult Male Manual Workers, Scottish Journal of Political Economy, Scottish Economic Society, vol. 32(3), pages 296-314, November.
Chen, Z., Lu, M. and Wan G. (2010) "Inter-Industry Wage Differentials: An Increasingly Important Contributor to Urban China Income Inequality," Global COE Hi-Stat Discussion Paper Series gd09-130, Institute of Economic Research, Hitotsubashi University.
Cotton, J. (1988) On the Decomposition of Wage Differentials. Review of Economics and Statistics 70(2): 236–43.
Davila A., and Mora M.T. (2005) Changes in the Earnings of Arab Men in the U.S. between 2000 and 2002. Journal of Population Economics 18(4): 587-601.
DiNardo, J., Fortin N. and Lemieux T. (1996) Labor market institutions and the distribution of wages, 1973–1992: a semiparametric approach. Econometrica 64 5 (1996), 1001–1044.
Doran, T, Drever, F., Whitehead, M. (2004) Is there a north-south divide in social class inequalities in health in Great Britain? Cross sectional study using data from the 2001 census. BMJ 2004; 328: 1043-5.
Dorling, D. (2010) The Economic Geography of the UK – unpublished
Freeman, R. B. and Katz, L. F. (1994) “Rising Wage Inequality: The United States vs. Other Advanced Countries,” in R. Freeman, ed., Working Under Different Rules. New York: Russell Sage Foundation.
García, I. and Molina, J. (2002) Inter-regional wage differentials in Spain, Applied Economic Letters 9, 209- 215.
Gregg, P. and Machin, S., (2000) Child Development and Success or Failure in the Youth Labor Market NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 247-288 National Bureau of Economic Research, Inc.
Heckman, J. J. (1976) The common structure of statistical models of truncation, sample selection, and limited dependent variables and a simple estimator for such models. Annals of Economic and Social Measurement 5: 475-492.
Heckman, J. J. (1979) Sample Selection Bias as a Specification Error, Econometrica 47, pp.153-161.
Hudson, R. (1998) Restructuring Region and State: the Case of North East England. Tijdschrift voor economische en sociale geografie, 89: 15–30.
Jann, B. (2008) A Stata implementation of the Blinder-Oaxaca decomposition. ETH Zurich Sociology Working Paper No. 5
Jenkins, S. (1994) Earnings Discrimination Measurement. Journal of Econometrics 61(1): 81-102.
Jones, F. L. (1983) On decomposing the wage gap: A critical comment on Blinder’s method, Journal of Human Resources 18, 126-30.
Jones, F. L., and J. Kelley (1984) Decomposing Differences Between Groups. A Cautionary Note on Measuring Discrimination. Sociological Methods and Research 12: 323–343.
Juhn, C., Murphy K. and Pierce B. (1991) Accounting for the slowdown in the black-white wage convergence, in Kosters M. (Ed) Workers and their wages, pp. 107-43, AEI Press.
Juhn, C., Murphy K., and Pierce B. (1993) Wage Inequality and the Rise in Returns to Skill. Journal of Political Economy 101(3):410-42.
Katz, L. F. and Autor D. H., (1999) Changes in the Wage Structure and Earnings Inequality, in O. Ashenfelter and D. Card (Eds.), Handbook of Labor Economics, vol. 3 Amsterdam: North-Holland
Katz, L. F. and Murphy, K. M. (1992) "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 35-78, February.
Layard, R. and Nickell, S. (1998) "Labour Market Institutions and Economic Performance" CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
Lucas, R. (1988) On the mechanisms of economic development, Journal of Monetary Economics 22, 3-42.
Machado, J. A. F., and Mata, J. (2005) “Counterfactual Decomposition of Changes in Wage Distributions Using Quantile Regression.” Journal of Applied Econometrics 20(4): 445–65.
Machin, S (1995) "Changes in the Relative Demand for Skills in the UK Labour Market,"CEP Discussion Papers dp0221, Centre for Economic Performance, LSE.
Machin, S. and Vignoles, A. (2004) "Educational inequality: the widening socio-economic gap," Fiscal Studies, Institute for Fiscal Studies, vol. 25(2), pages 107-128, June.
Makepeace, G., P., Joshi, P. H., and Dolton, P. (1999) How Unequally Has Equal Pay Progressed Since the 1970s. Journal of Human Resources 34(3): 534–56.
Mincer, J. (1974) Schooling Experience and Earnings. New York: National Bureau of Economic Research
Mincer, J., and Ofek, H. (1982) Interrupted Work Careers: Depreciation and Restoration of Human Capital. Journal of Human Resources, Vol. 17, No. 1 (Winter), pp. 3–24.
Motellon, E., Lopez-Bazo, E. and Mayssun, E. (2009) Regional heterogeneity in wage distributions. Evidence from Spain. Research Institute of Applied Economics Working Papers 2009/03
Neumark, D. (1988) Employers’ Discriminatory Behavior and the Estimation of Wage Discrimination. Journal of Human Resources 23(3): 279–95.
Oaxaca, R. L. (1973) Male-Female Wage Differentials in Urban Labour Markets. International Economic Review 14(3):693-709.
Oaxaca, R. L. (2007) The challenge of measuring labor market discrimination against women. Swedish Economic Policy Review 14 (2007), 199-231
Oaxaca, R. L. and Ransom, M. R. (1988) Searching for the effect of unionism on the wages of union and nonunion workers, Journal of Labor Research 9, 139-48.
Oaxaca, R. L. and Ransom, M. R. (1997) Identification in detailed wage decomposition, Centre for Labour Market and Social Research, University of Aarhus and the Aarhus School of Business, Working paper nº. 12.
Office for National Statistics (2010a) Regional Gross Disposable Household Income 2010 in: Statistical Bulletin [Accessed at: http://www.statistics.gov.uk/pdfdir/gdhi0310.pdf]
Office for National Statistics (2010b) Consumer Price Indices [Accessed at: http://www.statistics.gov.uk/statbase/Product.asp?vlnk=868]
Office for National Statistics (2010c) UK snapshot. [Accessed at: http://www.statistics.gov.uk/glance/uk-snapshots.asp]
Olsen, W., Vanessa, G., Vandecasteele, L., Heuvelman, H. and Walthery, P. (2009) The Gender Pay Gap in the UK 1995-2008, Presented at Work Pensions and Labour Economics Group WPEG 2009 Annual Conference, University of Nottingham
Pereira, J. and Aurora, G. (2007) Regional Wage Differentials: Static And Dynamic Approaches, CEFAGE-UE Working Papers 2007_07, University of Evora, CEFAGE-UE (Portugal).
Porter, M. E. (2000) Attitudes, Values, Beliefs, and the Microeconomics of Prosperity. In Culture Matters: How Values Shape Human Progress, ed. Lawrence E. Harrison and Samuel P. Huntington. New York: Basic Books
Reimers, C. W. (1983) Labor Market Discrimination against Hispanic and Black Men. Review of Economics and Statistics 65(4): 570–79.
Rosen, S. (1986) The theory of equalizing differences, in Ashenfelter O. and Layard R. (Eds) Handbook of Labor Economics, vol. I, pp. 641-92, Elsevier Science Publishers.
Rosenstein-Rodan, P. N. (1943) Problems of Industrialisation of Eastern and South-Eastern Europe. The economic Journal, vol. 53, No. 210/211 (Jun. - Sep., 1943), pp. 202-211
Sahling, L. and Smith S. (1983) Regional wage differentials: has the south risen again? Review of Economics and Statistics, 65, 131-5.
Scully, G. W. (1969) "Interstate Wage Differentials: A Cross Section Analysis," Amer. Econ. Rev., Dec. 1969, 59, 757-73.
Shannon, M. T. and Kidd, M. P. (2001) Projecting the Trend in the Canadian Gender Wage Gap 2001-2031: Will an Increase in Female Education Acquisition and Commitment be Enough? Canadian Public Policy, University of Toronto Press, vol. 27(4), pages 447-467, December.
Shorrocks, A. F. (1984) Inequality Decomposition by Population Subgroup. Econometrica Vol. 52, No. 6 (Nov., 1984), pp. 1369-1385
Takahashi, K. (2007) Sources of Regional Income Disparity in Rural Vietnam: Oaxaca-Blinder Decomposition, IDE Discussion Papers 95, Institute of Developing Economies, Japan External Trade Organization (JETRO).
University of Essex, 2010. Institute for Social and Economic Research, British Household Panel Survey: Waves 1-18, 1991-2009 [computer file]. 7th Edition. Colchester, Essex: UK Data Archive [distributor], July 2010. SN: 5151.
Vieira, J., Couto, J., and Tiago, M. (2006) Inter-regional Wage Dispersion in Portugal, Regional and Sectoral Economic Studies, Euro-American Association of Economic Development 6, 1.
Wilsher, P. and Cassidy, J. (1987) Two nations: the false frontier, Sunday Times, News in Focus, 11 January, pp.24-26 .
Wingfield, D., Fenwick, D. and Smith, K (2005), Relative regional consumer price levels in 2004, Economic Trends 615 February 2005, Office for National Statistics
Wooldridge, J. M. (2002) Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.
Yun, M. S. (2005) A simple solution to the identification problem in detailed wage decompositions, Economic Inquiry 43, 766-72.
Yun, M. S. (2006) Earnings Inequality in USA, 1969–1999: Comparing Inequality Using Earnings Equations. Review of Income and Wealth 52 (1): 127–144.