How New Is the "New Employment Contract"? Evidence from North American Pay Practices

By David I. Levine; Dale Belman et al. | Go to book overview

6
Job Characteristics, Skills,
and Wages

All theories of wage determination that we discuss predict that job characteristics play an important role in explaining why wages differ among establishments (see Chapter 2). In this chapter,1 we first examine the role of job characteristics in explaining employer wage effects in the Hay and Indiana/Japan data sets when treated as cross sections. We then examine the Hay data set over time.

In all the data sets, the basic technique is to run models:

and

where i indexes occupations and j indexes employers. The occupation characteristics vary among the data sets, and f1t and f2t represent complete sets of employer-specific intercepts.

To be brief, human capital theory posits that employer wage effects are due to poorly measured skills. To the extent the researchers have good measures of skills, then the importance (e.g., standard deviation) of employer wage effects should decline markedly when the job characteristics are added to Equation 6.1 (that is, s.d.(f1t) should be far greater than s.d.(f2t).


THE DATA

We first analyze a proprietary data set collected by Hay Associates, the world’s largest compensation consultant. To construct the skills

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