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Persistent wage differential and its implications on the Balassa-Samuelson hypothesis

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  • Jeong-Joon Lee

Abstract

The objective of the study is to empirically examine the wage equalization assumption in the Balassa-Samuelson (BS) hypothesis. The wage equalization between the traded and the non-traded sectors is tested primarily based on resampling methods, permutation tests. The results show that the assumption does not hold uniformly. This study argues that a more general condition, which allows for wage differential between the sectors, can be used in the BS hypothesis as long as the wage differential is persistent. The persistent wage differential condition is empirically supported in this study.

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  • Jeong-Joon Lee, 2005. "Persistent wage differential and its implications on the Balassa-Samuelson hypothesis," Applied Economics Letters, Taylor & Francis Journals, vol. 12(10), pages 643-648.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:10:p:643-648
    DOI: 10.1080/13504850500166204
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    1. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," NBER Working Papers 4807, National Bureau of Economic Research, Inc.
    2. Kennedy, Peter E, 1995. "Randomization Tests in Econometrics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 85-94, January.
    3. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 584-584.
    4. Menzie David Chinn, 1997. "Sectoral Productivity, Government Spending and Real Exchange Rates: Empirical Evidence for OECD Countries," NBER Working Papers 6017, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Dong He & Wenlang Zhang & Gaofeng Han & Tommy Wu, 2014. "Productivity Growth of the Nontradable Sectors in China," Review of Development Economics, Wiley Blackwell, vol. 18(4), pages 655-666, November.
    2. Cardi, Olivier & Restout, Romain, 2015. "Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect," Journal of International Economics, Elsevier, vol. 97(2), pages 249-265.
    3. Achim Schmillen, 2010. "Are Wages Equal Across Sectors of Production? A Panel Data Analysis for Tradable and Non-Tradable Goods," Working Papers 285, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    4. Achim Schmillen, 2013. "Are wages equal across sectors of production?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(4), pages 655-682, October.

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