Are wages equal across sectors of production?

A panel data analysis for tradable and non-tradable goods


  • I thank Jennifer Abel-Koch, Jürgen Jerger, Michael Stops, an anonymous referee and a managing editor (Wendy Carlin) as well as conference and seminar participants in Kiel, Luxembourg and Regensburg for helpful comments and suggestions. Special thanks are due to Joachim Möller and Richard Frensch for their constant guidance and support throughout this study. Financial support from the German Research Foundation is gratefully acknowledged. The usual disclaimer applies.


The assumption that national labour markets are homogeneous across tradable and non-tradable goods is common in multisector (open-economy) macro models and crucial for the prominent Balassa–Samuelson hypothesis. To test it, this study introduces a novel, theory-based method of distinguishing the tradable and non-tradable sectors to the Balassa–Samuelson literature and employs modern empirical methods and a large and detailed macro dataset. It finds that both the internal relationship between productivity and wages in the tradable and non-tradable sectors postulated by the Balassa–Samuelson hypothesis and its external transmission mechanism are rejected.