Anomalies: Interindustry Wage Differentials

Abstract

Firms advertise widely varying wages for jobs that appear to be very similar, such as secretary, data entry clerk, or “tele-marketing representative.” Students who graduate from Cornell's MBA program often receive offers from several firms in the same city with substantially different salaries. These observations seem to violate the law of one price, a fundamental component of the theory of competitive markets. The impression created by these casual bits of data is confirmed by more careful investigations. Some industries appear to pay higher wages than others, even when (measurable) labor quality is held constant. These interindustry wage differentials apply across occupations (if one occupation in an industry is high paid, then all other occupations tend to be) and over time. Why?