In this chapter an attempt is made to measure in net terms the wage differentials existing among the LAFTA countries. To begin with, sector and industry are homogenized across countries, with the comparison undertaken on an industry by industry basis within the manufacturing sector. In addition, the comparisons are made for job definitions requiring the same education, experience, and responsibility. Thus the comparisons are based on uniformity of these qualitative requirements. The range of occupations covered is very similar in each industry and country. However, the comparisons are not undertaken in terms of occupations, with all of these being pooled in the statistical experiments. In chapter 6 the occupational variable will be brought into the analysis.
Thus in chapter 4 it is assumed that, within the manufacturing sector, intercountry differences in wage levels are likely to be due more to variation in job content and the qualitative requirements related to it than to variation in the composition of occupations or positions. In fact, according to some authors the contribution of occupational classification to wage differences in general, if strictly defined, is probably small, with job content being much more influential.1 This seems to be especially true in Latin America, where workers and employees with the same qualitative characteristics appear to draw similar compensation in related occupations.2
This would also follow from the hedonic approach to demand theory discussed in chapter 2, which maintains that each good and service can be decomposed into a number of characteristics and that each of these is what interests the buyer. If perfectly competitive long-run equilibrium holds in a particular market, the price of each element should be the same irrespective of the good or service in which it is incorporated. Hence, goods and services with the same characteristics or elements should have the same prices even though they might appear to be of a different nature. Under disequilibrium conditions or imperfect competition, such forces can be partially,____________________