SECTORAL SHIFTS AND INTERINDUSTRY WAGE DIFFERENTIALS

The observed differences in wages across industries may arise from a lack of worker mobility, particularly among experienced workers, allowing the effects-of industry shocks to persist for some time. Although young workers arbitrage wage shocks, they will have little effect on the dispersion of experienced workers' wages if young and old workers are poor substitutes in production. This explanation is investigated using the five Censuses of Population between 1940 and 1980. The evidence strongly suggests that differences in pay are not temporary phenomena. The data provide some support for the role of human capital and ability.