Jonas Zielke Schaarup ()
Jonas Zielke Schaarup: Forsikring & Pension, Postal: Philip Heymans Alle 1, 2900 Hellerup, Danmark
Abstract: It is evident that there are significant differences in wages across industries in Denmark. Thus, DØR (2005) and Konkurrencestyrelsen (2008) find significant wage gaps that cannot be attributed to differences in observable employee characteristics. These wage gaps are used to infer differences in competition intensity in the output markets across industries. This article shows, however, that a substantial part of the wage differentials is due to unobserved heterogeneity in employee characteristics. Based on panel data for the period 2002-2005, a within transformation of data is used to eliminate the individual specific time-invariant heterogeneity. The result shows that on average about 61 per cent of the total variation in wages which is not explained by observable differences in characteristics is due to unobserved differences between employees. For some industries almost all the variation is due to differences in unobservables.
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