Working Papers

Labor Market Institutions and The Industry Wage Distribution

Evidence From Austria, Norway, and The U.S.


The paper compares the industry wage structures of Austria, Norway, the union sector of the U.S. as well as the non-union sector of the U.S. We make comparable regressions for each country, and are thus able to compare the sectoral earnings patterns controlling for the usual individual characteristics. Our results confirm the hypothesis that the patterns of the inter-industry pay structure is largely independent of labor market institutions: High paying industries in a nonunion environment tend to pay high wages also in regimes where bargaining is very centralized and coordinated. This, however, does not mean that collective bargaining does not matter. The influence is mainly on the amount of wage dispersion: We find considerably lower industry pay gaps in centralized Austria and Norway than in decentralized US. Within the US, pay differentials within the union sector slightly exceed those of the non-union sector. The results give support to non-competitive explanations of the labor market. If efficiency wage mechanisms were the reason for wage differentials we would expect central bargainers to internalize these effects. Competitive explanations, on the other hand, would predict no difference between the non-union outcome and a central agreement with the aim of achieving full employment.