Wage differentials and theories of wage determination: Evidence from the Chilean economy, 1937-1987

This dissertation conducts an empirical investigation of wage differentials and theories of wage determination for the Chilean economy during the period 1937-1987. Competitive and efficiency wage theories of the labor market are examined and their implications for the existence of wage differentials are discussed.A basic prediction of the efficiency wage theory is that similar workers will receive different wages across firms, a prediction confirmed by this study. The investigation reveals the existence of statistically significant inter-industrial and inter-firm wage differentials, and shows the consistency of the patterns in these differentials across time, occupations, firm size and countries. It is not only the existence of wage differentials, but also the regularities of these patterns that are particularly difficult to reconcile with a competitive explanation.An extensive analysis of the wage correlations across occupations is performed, using a detailed job classification. Wages inside a firm are highly correlated across occupations, even when comparing jobs that are not complementary in terms of production. This finding is hard to reconcile with unmeasured ability arguments on the contrary, it lends support to the hypothesis that equity considerations matter in wage determination.As do other studies on wage differentials, we find that high paying industries comprise large, capital-intensive firms, which are highly concentrated and earn above average profits. Multinational firms also tend to pay high wages. The extent to which this relation between wage differentials and firm characteristics supports efficiency wage models is discussed in the dissertation.In short, the behavior of the Chilean labor market poses a number of questions for the competitive hypothesis. The results of this research lend support to some versions of the efficiency wage theory.