INTER-INDUSTRY WAGE DIFFERENTIALS: Empirical Evidence 2

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Evidence of the Wage-Effort Tradeoff from 2-Digit Manufacturing Data

Given the potential problems with the use of hours as a measure of effort it is perhaps remarkable that we are able to find a clear relationship across manufacturing industries between the average number of hours worked per week and hourly wages. Figure 3.1 depicts two-digit SIC data on industry average weekly hours and industry average weekly wages for production workers at six different periods of time between 1950 and 1995. All six scatter diagrams have a remarkably clear association between hours and wages, exactly what we are looking for, with printing and publishing being the one outlier, offering a low-hour and high wage contract.

Of course it isn’t surprising that people who work more hours earn more, but Figure 3.1 has the increase in wages more than proportional to the average weekly hours, which we take as a reward for saving capital costs. These first data displays leave us excited about the accuracy of the theory. Low wage-low effort contracts are being offered in the labor-intensive industries such as apparel and leather, while high wage-high effort contracts are being offered in the capital-intensive sectors such as transport and chemicals.

Another interesting feature of the data displayed in Figure 3.1 is the backward bend in the early periods which is ironed out by 1980. The bend is associated with transportation and primary metals which offer high wages but lower hours than some of the other sectors. Printing and publishing is on the backward bending part of the curve in 1950 but separates entirely from the rest of the curve thereafter. We are inclined to think that the backward bending part of the curve is due to unionization effects. Production workers in transport and primary metals have unionization rates of over 55% compared to a 30% overall unionization rate for production workers in manufacturing industries. But printing has an unionization rate of only 14%.8 It may be that printing of newspapers requires intense worker effort during relatively few hours in a day..

Textiles is another unusual sector. Textiles in 1970 and earlier had many more hours but about the same wages as apparel and leather. Relatively high wage growth in textiles has moved the textile point closer to the rest of the scatter. This change has been accompanied by an increase in the average number of hours worked per week by production workers in this sector. The only other standout sector is furniture and fixtures which has been moving the opposite direction, from offering high wage-high effort contracts on par with chemicals in the 50’s to wage-effort contracts more on par with instruments and electrical products in 1995.