Cyclical Variation in the Interindustry Wage Structure

Abstract

This paper presents an analysis of cyclical variation in the interindustry wage structure. The study is therefore concerned with changes in relative wages among industries and not directly with the determination of the absolute wage level or changes in the absolute wage level. The theory of the wage structure presented here, is based on two hypotheses. TIhe first, introduced initially as a maintained hypothesis, is that differences among industries in the competitive structure of their product and labor markets result in wage inequalities for given skill levels. The second hypothesis, and the major finding of the paper, is that the size of the wage differentials is a function, not only of the extent and nature of the noncompetitive elements, but also of the excess demand conditions in the labor market. This result is derived from the proposition that under competitive supply conditions, labor allocation is based on relative wages. To support the theory, a wage structure equation is estimated with the coefficient of variation of straight time, average hourly earnings in the two-digit manufacturing industries as the dependent variable.' The implications of the study for aggregate and industry wage equations are then discussed.

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