Five Reasons Why Wages Vary Among Employers



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    • *The author's affliation is the Federal Reserve Board of Cleveland. Ohio. The author thanks Richard B. Freeman, Lawrence H. Summers, and John T. Dunlop for their comments and support on earlier versions. The paper also benefited from suggestions by Mary E. Deily, Randall W. Eberts, and Lawrence F. Katz.


This paper reviews the literature on wage differences among industries and establishments. After surveying the empirical evidence on intra- and interindustry wage differentials, five alternative explanations for employer-based wage differentials among observation equivalent workers are described. The paper concludes with a summary, a discussion of policy implications, and directions for future research.