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Inter‐Industry Compensation Differentials

Maury Gittleman and Brooks Pierce


A vast literature has sought to assess the magnitude of inter-industry differences in pay and explain why they exist. The measurement of inter-industry pay differentials and the resulting use of this information to assess the empirical relevance of different labor market theories have been hampered, however, by the fact that measures of total compensation -- as opposed to just wages and salaries -- are not available in the datasets traditionally used. To our knowledge, we are the first to use compensation microdata in a study of inter-industry pay differentials. Because nonwage compensation can easily exceed 40 to 50 percent of wages, its inclusion has the potential to alter measured industry pay differences, either diminishing or amplifying them. We find that the inclusion of benefits increases industry dispersion, as measured by the standard deviation of inter-industry differentials, by 16 percent when no controls are included and by an even greater 30 percent when controls are included.