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Regional heterogeneity in wage distributions. Evidence from Spain Elisabet Motellón Enrique López-Bazo Mayssun El-Attar AQR – IREA, UOC, EUI. ASSUMPTIONS

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Regional heterogeneity in wage distributions. Evidence from SpainElisabet MotellónEnrique López-BazoMayssun El-AttarAQR – IREA, UOC, EUI

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ASSUMPTIONS

  • Regional differentials in productivity and thus in wages are the result of different endowment of characteristics and of regional heterogeneity in their price/return.
  • Important role of regional endowment of HK and of differences in the return that workers obtain from investments in HK.
  • OBJECTIVES
  • General
    • To prove that regional heterogeneity in the return to HK is the major responsible of wage differentials across regions.
  • Specifics
    • To assess the magnitude of regional gaps in nominal and real wages
    • To decompose the regional wage gap into the contribution of endowments and prices of worker and firm characteristics
    • To measure the contribution of HK, both endowment and return, on regional wage disparities

Intangible assets & regional economic growth

Intangible assets & regional economic growth

IAREG2

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DATABASE

Wage Structure Survey for Spain (INE & EUROSTAT):

- matched employer-employee dataset  micro-data on wages and worker and firm characteristics

- includes workers in establishments of at least 10 employees

Spatial units: Spanish NUTS II regions  17 Comunidades Autónomas

Two groups: Low wage regions vs High wage regions

Periods: 1995 & 2002

Main variables:

- gross hourly wage (raw wage + complements) in October

- HK  years of schooling, tenure, experience

Intangible assets & regional economic growth

Intangible assets & regional economic growth

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METHODOLOGY

  • Wage gap decomposition for the entire distribution, and assessment of role of HK
  • Steps:
    • 1. Mincerian equations for high-wage (HW) and low-wage (LW) regions
    • 2. Estimation of counterfactual wagesfor the LW, with wage structure (prices) of HW
    • 3. Counterfactual wages for LW with returns to human capital of HW
    • 4. Comparison of actual and counterfactual wage distributions
    •  Effect of differences in return to HK on regional disparities in wage distributions

Intangible assets & regional economic growth

Intangible assets & regional economic growth

IAREG4

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MAIN RESULTS

  • Differences in regional wages not only in the first moment of the wage distribution, but also in its dispersion and shape.
  • Minor role for compensating differentials (cost of living ) and structural variation (endowment of characteristics)
  • Differences in regional wage distributions mostly explained by regional heterogeneity in returns (particularly in 2002)
  • Outstanding role of returns to human capital, with no effect of returns to job and firm characteristics.
  • Effects are not homogeneous along the wage distribution. Affect the mean, dispersion and shape

Intangible assets & regional economic growth

Intangible assets & regional economic growth

IAREG5

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GENERAL CONCLUSION

Regional convergence in worker (HK) and job and firm characteristics  non effective to reduce regional wage gaps as they are mostly caused by heterogeneity in returns (particularly to HK).

 Homogenization of regional wage distributions can only be achieved by convergence in (private) returns to human capital

Intangible assets & regional economic growth

Intangible assets & regional economic growth

IAREG6

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