INTER-INDUSTRY WAGE DIFFERENTIALS IN GREECE: RENT-SHARING AND UNOBSERVED HETEROGENEITY HYPOTHESES

Evangelia Papapetrou

Bank of Greece and National and Kapodistrian University of Athens

Pinelopi Tsalaporta

Bank of Greece and National and Kapodistrian University of Athens

ABSTRACT

This paper examines the structure and determinants of inter-industry wage differentials in Greece, along with the role of the rent-sharing and unobserved heterogeneity hypotheses, employing restricted least squares and quantile regression techniques with cluster robust standard errors at the firm level. To this end, a unique dataset, the European Union Structure of Earnings Survey (SES), is utilized. Data refer to 2010 when the first elements of the economic adjustment programme to deal with the chronic deficiencies of the Greek economy and restore sustainable public finances, competitiveness and set the foundation for long-term growth were beginning to be implemented. Results point to high wage dispersion across industries at the mean of the conditional wage distribution, even after controlling for personal and workplace characteristics. However, evidence for the unobserved heterogeneity hypothesis is rather scant. Therefore, there is room for efficiency wage or rent-sharing theories in accounting for a large part of inter-industry wage differentials tentatively implying that firm heterogeneity in the ability-to-pay matters more than employee unobservable attributes in the wage determination process.

Keywords: Inter-industry wage differentials; Rent-sharing; Unobserved heterogeneity hypotheses; Greece

JEL classification: J31; J16; J24; C21; M52

Acknowledgements: The authors would like to thank the Hellenic Statistical Authority (ELSTAT) for providing the data and Professor J. Santos Silva for useful discussions. The views expressed are those of the authors and do not necessarily reflect those of the Bank of Greece.

Correspondence:

Evangelia Papapetrou

Bank of Greece

21 El. Venizelou Avenue

102 50, Athens, Greece

tel: +30 210 320 2377

fax: +30 210 323 3025
e-mail: epapapetrou@bankofgreece.gr